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NEGATIVE 
NO.  94-82067 


COPYRIGHT  STATEMENT 


I 

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Author: 


Bohm  von  Bawerk,  Eugen 


Title: 


Capital  and  interest  once 
more  2V. 

Place: 

[Boston?] 

Date: 

[1 906-07] 


?y-p^67-^ 


MASTER   NEGATIVE   * 


COLUMBIA  UNIVERSITY  LIBRARIES 
PRESERVATION  DIVISION 

BIBLIOGRAPHIC  MICROFORM  TARGET 


ORIGINAL  MATERIAL  AS  FILMED  -    EXISTING  BIBLIOGRAPHIC  RECORD 


(USINEM 

115 


B-dhm  von  Bawerk,  Eugen,  ritter,  1851-1914. 

Capital  and  tnterest  once  more  ...  iiy  >^' 
BBhm-Ba-werk  ...  t Boston?  1906-07, 

2  V.  in  1. 

Cover-title.  ...    t. 

Mainly  a  oriticisn  of  The  distribution  of 

Yrealth,  by  J.  B.  Clark.  -,«.»„„ 

Reprinted  from  the  Quarterly  journal  of  eco- 
nomics. Vol.  XXI,  Nov.,  1906  and  Feb.,  1907. 
Contents. -I.  Capital  vs.  capital  goods. - 
II.  A  relapse  to  tha  productivity  theory. 


RESTRICTIONS  ON  USE; 


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MAIN  ENTRY:    Rohm  von  Pawerk.  Euaen 

napitial  and  interest  once  more  (Vol.  2) 


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I.   CAPITAL  vs.  CAPITAL  GOODS. 


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DEC  11  1940 

CAPITAL  AND  INTEREST  ONCE  MORE : 
I.    CAPITAL  VS.  CAPITAL  GOODS 


BY 


E.  BOHM-BAWERK 


\ 


reprinted  from 

The  Quarterly  Journal  of  Economics 

Vol.  XXI.,  November,  1906 


— -ri_.»"-.- r.-x^   J^jj.g.g^M.Ut.'^.J.'-ll.  .  J..^:'Ar-^'M....l'."'y  ...     '"■■■.'yWgT' 


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THE 


QUARTERLY  JOURNAL   OF  ECONOMICS 

Published  for  Harvard  University  \ 

Is  established  fo,-  the  advancement  of  knoMge  by  the  full  and  free  discussion 
of  economic  questions.  The  editors  assume  no  responsibility  for  the  vu^s  of 
contributors,  beyond  a  guarantee  that  they  have  a  good  claim  to  the  atuntton  .| 

well-informed  readers .  . 

Communications  for  the  editors  should  be  addressed  to  the  Quarterly  Journ^ 

of  Economics,   Cambridge,  Mass.;   business  communications  and  subscr.pt,o«. 

(%3  00  a  yeaf),  to  Geo.  H.  Ellis  Co.,  ^^  Congress  Street,  Boston,  Mass. 


I. 


CONTENTS  FOR  AUGUST,  1906 

WAGES    AND    PRICES    IN     RELATION    TO    INTERNATIONAL 

S 

UNITED 


II. 


TRADE        

THE     DISTRIBUTION     OF     IMMIGRANTS     IN     THE 

STATES ■        '        ■        '        ' 

III.    THE  RECENT  GROWTH  OF  CO-OPERATION  IN   IRELAND 

OF    KARL     MARX 

FOLLOWERS 
V.    THE  RELATION  OF  MARGINAL  RENTS  TO  PRICE 

NOTES  AND  MEMORANDA: 

On  the  Beginning  of  the  Cotton  Industry  in  England     . 
Change  in  Mortgage  Taxation  in  New  York  in  1906        . 
Taxation  of  Railroad  and  Canal  Property  m  New  Jersey 
Seligman's  "Principles  of  Economics" 

RECENT  PUBLICATIONS  UPON  ECONOMICS. 


F.  W.  Taus.«»g 

t 
Walter  F.  Willciox 

David  A.  McCape_ 


THE    SOCIALIST     ECONOMICS     OF    KAKL.     m^^.     AND     HIS        ^^^^^^^^  ^^^j^^ 

I 

Frank  T.  Carlt^^n 


William  H.  Pric  e 

Frank  A.  Fett* ;» 

Winthrop  M.  Daniels 

F.  W.  Taus(iig 


CONTENTS  FOR  NOVEMBER.  1906 

CAPITAL  AND  INTEREST  ONCE  MORE :     I.    Capital  vcr,u,  Capi- 

tal  Goods. 

THE  INTERSTATE  COMMERCE  ACT  AS  AMENDED     . 
,„.    THE   TAXATION    OF  PERSONAL  PROPERTY   IN  PENNSYL 

VANIA .••••• 

THE  TELEPHONE   IN   GREAT   BRITAIN 

CO-OPERATION   IN  THE  APPLE  INDUSTRY  IN   CANADA 

NOTES    AND  MEMORANDA:  ^       r.      ■  a^. 

seligman's  "Principles  of  Economics":  a  Reply  and^aj^eprnder 


y 


E.  Bbhm-Bawerle; 
I 
Frank  Haigh  Dixokn 


I 


II. 


IV, 
V 


Rowell  C.  McCrea 

A.  N.  Holcombe 

R.  H.  Coats 


E.  R.  A.  Seligman  and  F.  W.  Taussig 


RECENT   PUBLICATIONS   UPON   ECONOMICS. 


4 


I 


THE 


QUARTERLY  JOURNAL 


OF 


ECONOMICS 


NOVEMBER,  1906 


CAPITAL  AND  INTEREST  ONCE  MORE :    I.    CAPI- 
TAL VS.  CAPITAL  GOODS. 

The  many  efforts  which  the  human  mind  has  made  to 
solve  the  difficult  problems  of  capital  and  interest  have 
been  much  added  to  during  the  last  few  years.  The 
largest  and  most  important  part  of  the  new  literature  has 
been  in  English.  Not  to  mention  many  shorter  papers 
and  essays,  I  received  since  the  year  1889  not  less  than  six 
complete  treatises  which  grapple  with  this  problem,  some 
of  them  with  this  alone,  and  some  with  this  as  part  of  a 
general  exposition  of  economic  theory.  Chronologically 
first  and  planned  on  a  generous  scale  is  the  work  of  Pro- 
fessor Clark  on  the  Distribution  of  Wealth}  Others  are 
the  monographs  of  Professors  Carver  ^  and  Cassel,^  and  the 
tex^-books  of  Professors  Seager,*  Fetter,^  and  Seligman.* 

1  MacmUlan,  New  York,  1899. 

2  DiatrihxUion  of  Wealth,  Macmillan,  New  York,  1904. 

3  The  Nature  and  Necessity  of  Interest,  Macmillan,  London,  1903. 
*  Introduction  to  Economics,  Henry  Holt,  New  York,  1904. 

5  The  Principles  of  Economics,  The  Century  Company,  New  York,  1904. 

6  Principles  of  Economics,  Longmans,  New  York,  1905. 


tt 


<••■»"• -A* L.T  '.i« -->>«*  >_t  .'■■"?■  :v- 


rtftitt^ 


INTENTIONAL  SECOND  EXPOSURE 


\ 


^'  L. 


. .  .  THE . .  . 

QUARTERLY  JOURNAL   OF  ECONOMICS 

Published  for  Harvard  University 

Is  established  for  the  advancement  of  knowledge  by  the  full  and  free  discus sion- 
of  economic  questions.  The  editors  assume  no  responsibility  for  the  views  of 
contributors,  beyond  a  guarantee  that  they  have  a  good  claim  to  the  attention  cf 

1 

well-informed  readers. 

Communications  for  the  editors  should  be  addressed  to  the  Quarterly  fournal 
of  Economics,  Cambridge,  Mass.;  business  communications  and  subscriptions 
{$3.00  ayear^,  to  Geo.  H,  Ellis  Co.,  2^2  Congress  Street,  Boston,  Mass. 


F.  W.  Tausii'ig 


CONTENTS  FOR  AUGUST,  1906 

I.     WAGES    AND    PRICES    IN     RELATION     TO    INTERNATIONAL 
TRADE        

II      THE     DISTRIBUTION     OF     IMMIGRANTS     IN     THE     UNITED  \ 

STATES Walter  F.  Willc:Ox 

THE   RECENT  GROWTH  OP  CO-OPERATION   IN   IRELAND  David  A.  McCa^e 

THE    SOCIALIST     ECONOMICS     OF    KARL     MARX     AND     HIS 
FOLLOWERS.    I 

THE   RELATION   OF   MARGINAL   RENTS  TO   PRICE 


III 
IV 


1 
Thorstein  Veb|en 

Frank  T.  Carltljn 


NOTES  AND  MEMORANDA: 

On  the  Beginning  of  the  Cotton  Industry  in  England 
Change  in  Mortgage  Taxation  in  New  York  in  1906 
Taxation  of  Railroad  and  Canal  Property  in  New  Jersey 
Seligman's  "Principles  of  Economics"        .... 

RECENT  PUBLICATIONS  UPON  ECONOMICS. 


I 


William  H.  Pric  e 

Frank  A.  Fett^ ;» 

Winthrop  M.  Danie/is 

F.  W.  Taus4g 


CONTENTS  FOR  NOVEMBER,  1906  \ 

I      CAPITAL  AND  INTEREST  ONCE  MORE :      I.     Capital  vcrm»  Capi-  ' 

tal  Goods E.  Bbhm-Bawerki 


II.     THE  INTERSTATE  COMMERCE  ACT  AS  AMENDED     . 

III.  THE   TAXATION   OF   PERSONAL  PROPERTY   IN  PENNSYL 

VANIA .• 

IV.  THE  TELEPHONE   IN   GREAT   BRITAIN 

V.     CO-OPERATION   IN   THE   APPLE  INDUSTRY   IN   CANADA 

NOTES    AND  MEMORANDA: 

Seligman's  "Principles  of  Economics":   a  Reply  and  a  Rejoinder 


Frank  Haigh  Dixo>n 


Rowell  C.  McCrea 


J 


A.  N.  Holcomb 


R.  H.  Coats' 


E.  R.  A,  Seligman  and  F.  W.  Taussig 


'JP*"^!-! 


k 


i>   ) 


RECENT   PUBLICATIONS   UPON   ECONOMICS. 


I 


i        / 


i 


\ 


THE 


QUARTERLY  JOURNAL 


OF 


ECONOMICS 


\OVEMBET!.    190') 


C\P1TAL  AND  INTERE:^!  OXCE  MORE;    I.     CAPI- 
TAL rs.  CAPITAL  (-.oom. 

Thf  niaiiv  efforts  which  the  human  nund  has  made  to 

«olv..  The  ditticuU  problem,  of  capital  and  interest  have 

been   much    added   to   during   the   last    few   years.     The 

largest  and  most  important  j.art  of  the  new  literature  has 

been  in  I'nglish.     Not  to  mention  many  shorter  papers 

and  e-<savs.  I  received  since  the  year  1SS9  not  less  than  six 

complete  treatises  which  grapple  with  this  problem,  some 

of  them  with  this  alone,  and  some  with  this  as  part  o    a 

general   exposition   of  economic   theory.     Chronologically 

i„v,  and  I'lannod  on  a  generous  scale  is  the  work  of  Pro- 

fe--or   (lark   on.   ihe    ]Mr9nd.m  <-/  ir«->///..'     Others  are 

the  mnnn.rai.hs  of  Professor-  Carver  =  and  Cassel.'  and  the 


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.;    WoilO..  Macnuilar-:.   N.>vv  Y-rk,   1004. 


1  Macn.,.laFi.   N.-w  Y-rk.    i  "^99. 

3  The  Xatun  nnd  Secessiry  nj  Intr-'Sf.  Mar!inii:ui 
/ 

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2  QUARTERLY  JOURNAL  OF  ECONOMICS 

I  believe  I  shall  make  no  mistake  in  considering  the 
first-named  work  as  that  which  proposes  the  greatest 
changes  from  the  traditional  treatment  of  the  subject; 
and  I  think  that  I  am  not  mistaken  in  believing  that 
during  the  comparatively  short  time  since  the  appearance 
of  Professor  Clark's  book  there  are  significant  and  mcreas- 
ing  indications  of  the  influence  which  his  special  doctnnes 
exercise,  not  only  in  his  own  country,  but  elsewhere  also. 
I  have,  therefore,  every  ground  for  giving  attention  above 
all  to  Professor  Clark  and  to  his  work. 

I  have  read  Professor  Qark's  admirable  book  with  the 
double  pleasure  derived  from  a  work  which  is  at  once  a 
scientific  achievement  and  a  work  of  art.    Professor  Clark 
has  a  gift  of  shaping  and  ordering  his  matter,  of  ammatmg 
it  by  attractive  form,  and  of  illuminating  it  with  stnkmg 
illustrations,  which  has  a  near  relation  to  the  talents  of 
an  artist  or  poet.    The  pleasure  of  reading  was  long  un- 
disturbed.   I   was  delighted  with  the   clear  and  com- 
prehensive statement  of  the  main  problems,  the  exposition 
of  the  several  tasks  of  economic  science,  the  clear  formu- 
lation of  the  hypotheses  underlying  static  laws,  the  plastic 
art  with  which  the  realization  of  abstract  laws  under 
concrete  conditions  was  described.    I  found  myself  in 
agreement  with  Professor  Clark  on  certain  fundamental 
points,  as  on  nature  and  origin  of  value  and  on  the  prin- 
ciples of  substitution  and  imputation,  and  long  had  the 
impression  that  no  conclusions  could  follow  from  such 
premises  which  would  not  recommend  themselves  to  me 
Nevertheless,  to  my  great  regret,  the  point  was  reached 
where  I  had  to  differ.    Our  paths  of  reasoning  began  to 
diverge,  at  first  slightly,  then  more  and  more,  on  a  subject 
which  had  already  been  the  occasion  of  scientific  contro- 
versy between  us.    This  is  the  noted  conception  of  "true 
capital"  (formerly  caUed  by  Clark  "pure  capital")  as  a 
"permanent  abiding  fund,"  to  be  distinguished  from  the 


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CAPITAL  VS.  CAPITAL  GOODS 


3 


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capital  goods"  in  which  this  fund  is  at  a  given  time 

embodied. 

Some  years  ago  I  had  occasion  to  sound  a  note  of  warning 
agamst  this  conception,  on  the  ground  that  it  departed 
from  solid  contact  with  concrete  facts  and  ascribed  reality 
and  exactness  to  notions  which  wwre  hardly  more  than 
figures  of  speech.  Professor  Qark  then  replied,  and  a 
discussion  ensued  in  the  columns  of  this  journal,  which  may 
have  removed  some  misunderstandings,  but  left  neither  ^ 
contestant  convinced.* 

I  am  aware  that  the  conception  of  capital  which  I  then 
criticised  has  rather  gained  than  lost  in  scientific  prestige 
during  the  years.  Professor  Tuttle  has  recently  declared 
it  in  these  columns  "the  most  notable  of  the  many  im- 
portant contributions  of  this  brilliant  writer." '  Professor 
Seager's  exposition  comes  very  close  to  the  Clarkian  mode 
of  treatment.'  There  are  echoes  of  it  m  the  writings  of 
Cassel  and  Seligman.*  Professor  Fetter,  whose  treatment 
of  the  theory  itself  differs  distinctly  from  Qark's,  yet  makes 
his  bow  to  that  writer's  treatment  of  capital.^  Professor 
Carver,  to  be  sure,  differs  without  qualification:  "Capital^ 
is  not  value,  but  things."  * 

If  it  were  simply  a  matter  of  definition,  I  should  not 
again  take  up  my  pen.  In  matters  of  definition  and  name 
the  choice  is  commonly  not  between  the  true  and  the  false, 
but   between   the   serviceable   and   non-serviceable.    As 

»  See  Professor  Qark's  essays,  "The  Genesis  of  Capital,"  Yale  Review,  Novem- 
ber, 1893;  "The  Origin  of  Interest"  in  the  Qvarterly  Journal  of  Economice,  April, 
1895;  and  "Real  Issues  concerning  Interest,"  Ibid.,  October,  1895;  and  my  article 
on  "The  Positive  Theory  of  Capital  and  its  Critics,"  Ibid.,  January,  1895. 

'  Quarterly  Journal  of  Eeonomica,  November,  1904,  p.  88,  note  1. 

«  Compare,  for  example,  his  Introduction,  p.  126. 

*For  example.  Nature  of  Intereet,  p.  167;  PnncipUe  of  Economict,  pp.  216, 
265,  318,  392  ff.,  and  elsewhere. 

» "Capital  is  the  value  equivalent  of  a  sum  of  money  'invested,'  'clothed'  ia 
forms  of  wealth  purchased  and  exchanged."     Principlee,  p.  115. 

•  Carver's  Distribution  of  Wetdtk,  p.  219. 


7V^ 


/ 


1 


\ 


?» 


4  QUARTERLY  JOURNAL  OF  ECONOMICS 

Professor  Qark  h^s  remarked  with  perfect  truth/  "It  may 
^d    d  be  possible  to  carry  through  an  entire  study  of 
Soniic  scLe  the  conception  of  Phenomena  ™^edm 
an  abnormal  mamier."    Bad  termmology  .^  hke  an jm 
perfect  and  perhaps  dangerous  tool,  with  which  a  master 
C  none  tfe  J  achieve  the  right  Foduc  ;  -en  *« 
with  difficulty.    Such  seemed  to  me  the  situation  m  1895 
r  hen  warned  against  the  conception  of  "pure  capital 
as  dSin^hed  from  "capital  goods"  a.  a  dangerous  one 
L  aShat  Professor  Clark  had  ^ncceeded  in  kW 
free  from  the  erroneous  conclusions  which  might  be  de- 

ri vpd  from  his  dangerous  premises. 
The  Tuation  hi  now  changed.    In  his  Mvt^ 

0/ M  ftofessor  Clark  has  based  on  this  conception  an 

exrf^ttn  of  interest  which  seems  te  me  erroneous. 

SCLtion  does  not  .Ive  the  prob^m  but  ev^es^- 

Under   these   circumstances,    '^"t^^^^^^^S  a!  hS 
Clark's  high  authority,  the  more  because  of  that  authonty, 
T  think  it  mv  duty  to  resume  the  controversy. 
'  ^SerClark  objects  to  considering  capital  as  a   ote^ 
or  a  quantity  of  "capital  goods."    "Capital  goods    axe 
ncret  instmments  of  production,  such  -;~^"^^ 
machines  tools.    Professor  Clark  reckons  land  also  m  this 
ZTAntuponwMchtheremaybedi^^n.^op^^^^^ 
but  which  does  not  here  concern  us.     Capital  it^« -^^ 
ever  or  "true  capital,"  is  somethmg  different     Protessor 
S'amiot  sa/enough,  --P-^ted  and  ncmy  v^^^^^ 
Dhraseology,  of  this  distinction.    Capital  is     a  sum  oi 
'p^dTctf  ;ealth,  invested  in  material  tl-g-^»^  - 
JerpetuaUy  shifting";  "a  qmntum  of  matter  of  the  kind 

1  Clark's  Distribution  of  Wealth,  p.  150. 

I,  ♦»,«♦  T  have  not  overlooked  the  recent  rich  and 

2  I  take  this  occasion  to  remark  that  I  *«;«  *^^*  The  important  contributions  of 
interesting  literature  on  the  ^efin^tion^^  ^/^^^^^^^^^^  ^^,  ,^,,  ,,,,ider 
Lt^t  rdt^i^rt^d^liy"— d'    I  -Pe  to  consider  these  other 
phases  of  the  subject  on  another  occasion. 


]' 


/ 


\ 


CAPITAL  VS.  CAPITAL  GOODS  5 

defined  as  producers^  goods,  measured  in  terms  of  value 
and  having  the  characteristic  of  forever  shifting  its  bodily 
identity";  "an  endless  succession  of  shifting  goods  always 
worth  a  certain  amount";  or  "a  certain  amount  of  'money' 
permanently  invested  in  a  succession  of  perishable  things, 
or  finaUy,  in  short,  "a  permanent  abiding  fund  of  produc- 
tive wealth."^ 

I  should  probably  accede  to  aU  of  these  definitions,  or 
to  most  of  them,  if  it  were  permitted  me  to  regard  them  as 
explanatory  phrases  towards  some  final  definition,  and  this 
the  obvious  one  by  which  capital  is  nothing  more  than 
the  sum  and  substance  of  the  productive  instruments  or 
capital  goods  which  constitute  it.    Professor  Clark  and 
I  agree  on  certain  positive  facts  which  he  brings  into  sharp 
rehef  in  his  definitions.    I,  too,  believe  that  capital  is  a 
"fund"  or  "quantum"  of  matter.    I  think  it  clear  that 
any  one  who  wishes  to  make  an  estimate  of  the  size  of  this 
fund  must  measure  it,  not  by  counting  the  pieces  or  cal- 
culating their  volume  or  weight,  but  by  measuring  it  in 
terms  of  value— nowadays  in  terms  of  money.    Finally, 
it  wiU  be  admitted  on  all  hands  that  the  community's 
instruments  of  production,  m  distinction  with  (say)  a 
coUection  of  fossils  or  of  incunabula,  does  not  maintain 
Itself  by  perpetuation  of  the  mdividual  pieces,  but  by  a 
process  of  constant  change  and  reproduction.    To  use  two 
similes  of  Professor  Clark's,  a  waterfall  persists  notwith- 
standing  change  of  the  fallmg  water,  a  forest  notwith- 
standing constant  growth  and  feUing  of  the  trees.    The 
same  truth  holds  good  (barring  exceptions  of  the  sort  just 
noted)  of  almost  anything  described  as  a  continumg  total; 
thus,  of  the  population  of  a  village,  the  rolling  stock  of  a 
railway,  the  faculty  or  student  body  of  a  university,  the 
merchant  marine  of  a  country,  the  garrison  of  a  fortress 
and  the  like. 

'  Distribution  of  WeaUh,  pp.  118-121,  and  elsewhere. 


1 

1 


H  QUARTERLY  JOURNAL  OF  ECONOMICS 

If  Professor  Clark  were  to  content  himself  with  empha- 
sizing matters  of  this  sort,  I  should  have  no  occasion  to 
differ  with  him,  or,  rather,  he  would  have  no  occasion  to 
enter  into  controversy  with  me.*  These  things  I  have 
myself  set  forth  in  their  proper  places.  But  Professor 
Clark  does  not  content  himself  with  this.  Like  the  true 
devotee,  he  wishes  us  to  fakly  abjure  the  notion  that  capital 
is  made  up  of  capital  goods.  This  seems  to  him  so  danger- 
ous an  error  that  it  will  infallibly  lead  the  analysis  of  capital 
into  the  wrong  paths.  Only  if  it  be  abandoned,  is  there 
prospect  of  solving  the  problem.* 

The  situation  is  curious.  Professor  Clark  regards  that 
as  heretical  and  destructive  which  I,  on  my  part,  regard 
as  so  natural  and  obvious  that  I  find  difficulty  in  stating 
the  grounds  of  my  belief.  The  endeavor  to  give  reasons 
for  that  which  is  a  matter  of  course  ahnost  inevitably 
leads  to  the  commonplace  or  to  tautology.  But  let  me 
call  attention  to  somethmg  like  this.  How  has  one  ever 
come  to  a  conception  of  capital?  It  has  been  observed 
that  all  sorts  of  things,  such  as  factory  buildings,  spinning 
machinery,  hanmiers,  wool,  coal,  iron  (land  also,  if  you 
wish),  differ  from  consumers'  goods  in  this  regard,  that  they 
have  a  very  real  effectiveness  in  production.  Hence  the 
generic  conception  or  definition  for  indicating  this  quality 
common  to  them  all.  Further,  the  need  was  felt,  as  with 
so  many  other  conceptions,  of  indicating  not  only  indi- 
vidual things  of  this  kind,  but  groups  or  quantities  of 
them;  and  something  like  an  agreement  was  reached  to 
use  the  word  "capital"  for  this  termmological  purpose. 
My  question  now  is  whether  it  is  not  obvious  that  by 
"capital"  we  mean  a  sum  of  productive  instruments,— 
precisely  those  instruments  to  which  the  generic  term  was 
applied.  Capital  is  just  as  much  a  sum  or  number  of 
productive  instruments,  of  capital  goods,  as  a  forest  is  a 


>  See  his  article  on  the  "Genesis  of  Capital,"  p.  306. 


*Ibid.,p.302. 


■) 


11 


y> 


f 


.3 


i 


CAPITAL  VS.  CAPITAL  GOODS  7 

number  of  trees,  a  population  a  number  of  people,  and  a 
library  a  number  of  books.    I  need  only  cite  Professor 
Clark     himself.      "Capital    consists    of    instruments    of 
production,  and  these  are  always  concrete  and  material";* 
"capital    consists   in  self-renewing  goods";*    "the  con- 
crete things  that  compose  it"'  and  "helps  to  constitute 
it";*  the  capital  of  a  railway  is  "its  concrete  and  mater- 
ial outfit  of  instruments  for  carrying  passengers  and  mer- 
chandise."*^   The  capital  of  the  world  is   pictured  to  us 
as  "one  great  tool  in  the  hand  of  working  humanity— the 
armature  with  which  humanity  subdues  and  transforms 
the  resisting  elements  of  nature."®    And  from  such  ex- 
pressions shall  we  suppose  it  to  be  wrong  and  sinful,  or 
merely  obvious,  that  this  equipment  of  humanity  is  the 
whole  of  the  concrete  material  instruments  of  production, 
of  which,  according  to  Professor  Clark's  own  words,  capital 
consists  and  of  which  capital  is  composed? 

Oddly  enough  this  is  not  Professor  Clark's  conclusion. 
Let  us  examine  the  ground  on  which  he  contests  it. 

His  strongest  ground  is  stated  in  the  following  terms: 
"The  most  distinctive  single  fact  about  what  we  have 
termed  capital  is  the  fact  of  permanence.  It  lasts,  and 
it  must  last,  if  industry  is  to  be  successful.  Trench  upon 
it— destroy  any  of  it,  and  you  have  suffered  a  disaster. 
.  .  .  Yet  you  must  destroy  capitcd-goods  in  order  not  to 
fail.  Try  to  preserve  capital-goods  from  destruction, 
and  you  bring  on  yourself  the  same  disaster  that  you  suffer 
when  you  allow  a  bit  of  capital  to  be  destroyed.  .  .  .  The 
point  of  sharpest  contrast  between  capital  and  most 
capital-goods  is,  indeed,  the  permanence  of  the  one,  as 
compared  with  the  perishability  of  the  other.'"  Things 
so  differently  constituted,  according  to  Professor  Clark, 
cannot  be  identical. 


*  Dittributum  of  WeaUh,  p.  116. 

*  Ibid.,  p.  335.  « llnd.,  p.  249. 


»/6id.,p.265. 
•/W(i.,p.  117. 


»/6id.,p.269. 
'/did.,  p.  117  tea. 


■WflWF 


^ 


8 


QUARTERLY  JOURNAL  OF  ECONOMICS 


J 


I  beUeve  that  Professor  Clark  has  allowed  himself  to 
be  ensnared  by  a  dialectic  antithesis.    The  investigator 
has  given  too  much  play  to  the  rhetorician,  the  economist 
to  the  grammarian.    The  nature  of  his  error  wiU  be  ob- 
vious from  a  trivial  and  very  simple  example.    Does  any 
one  doubt  that  a  table  service  for  twelve  persons  consists 
of  a  real  quantity  of  concrete  things,  such  as  plates,  saucers, 
spoons,  forks,  knives?    And  yet  here  we  have  this  same 
situation,  that  each  one  of  these  pieces  is  perishable,  and 
that  the  housekeeper  keeps  the  service  intact  for  an  in- 
definite period  by  steadily  replacmg  what  is  broken  or 
worn  out.    Here,  too,  we  can  say,  by  way  of  antithesis. 
The  service  remains,  the  individual  perishes."    Would 
any  one  wish  to  ba^e  upon  this  state  of  facts,  or  rather 
upon  this  use  of  language,  the  scientific  conclusion  that 
the  service  is  not  identical  with  the  totality  of  the  pieces, 
but  is  an  essentially  different  entity?    What  manner  of 
entity  should  this  be?    Surely,  not  bodily  different.    Is 
there  a  different  spiritual  entity,  which  is  embodied  as  a 
sort  of  soul  in  the  plates  and  knives?    The  notion   is 
absurd.    Or  there  is,  perhaps,  no  entity  at  all,  but  only  a 
mode  of  speech,  a  mere  abstraction?    Hereof  we  shaU 
have  occasion  to  speak  presently. 

Is  the  crew  of  a  ship,  the  garrison  of  a  fortress,  something 
different  from  the  individuals  who  make  up  these  totals? 
And,  if  something  different,  what  in  the  worid  is  it?  Yet 
here,  too,  it  might  be  said  with  the  same  antithesis,  "The 
garrison  of  Gibraltar  is  something  permanent,  durable, 
mamtaining  itself  through  centuries,  while  not  a  single 
one  of  the  soldiers  constituting  that  garrison  has  lived 
through  the  centuries,"  whence  one  should  conclude  that 
the  garrison  is  something  different  from  the  soldiers. 

I  think  the  actual  facts  which  underlie  aU  these  attempts 
at  distinction  are  easy  to  understand.  A  given  species 
continues  to  be  represented  through  a  period  of  time  by 


^3        « 


i       p 


CAPITAL  VS.  CAPITAL  GOODS  9 

individuals  who  always  show  the  characteristics  or  ear- 
marks of  the  species,  and  whose  number  numericaUy 
remains  constant.    In  this  sense  it  can  be  said  that  the 
species  remains,  tho  the  mdividuals  change.    But,  obvi- 
ously, the  continuance  of  the  species  means  simply  the 
presence  of  the  individuals  who  represent  it  at  any  moment. 
It  would  be  a  deceptive  notion  to  suppose  that  there  must 
be  a  third  thing  different  from  the  individuals  in  order  that 
the  species  may  continue.    Whatever  is  to  be  done  by  the 
garrison  of  the  fortress  or  is  to  happen  to  the  garrison 
must  be  done  by  the  individuals  or  must  happen  to  them. 
Whatever  is  to  happen  to  capital  must  happen  to  the 
capital  goods  which  constitute  it  or  wiU  not  happen  at  aU. 
And  what  of  this  rhetorical  antithesis  which  is  so  en- 
ticing to  Professor  Clark?    It  is  nothing  more  than  a 
rhetorical  antithesis.    It  does  not  distinguish,  as  Pro- 
fessor Clark  thinks  it  does,  between  concrete  things,  one 
of  which  remains,  while  the  other  disappears.    This  per- 
manent, unchangmg  thing  which  he  contrasts  with  the 
shifting  realities  exists  only  in  the  realm  of  thought  as  an 
abstraction.    As  a  matter  of  fact,  the  garrison  at  Gibraltar 
IS  not  always  the  same,  tho  ten  thousand  soldiers  have  held 
the  fortress  through  the  centuries.    It  is  not  the  same 
capital  which  I  own,  if  I  have  raw  materials  and  machines 
to  the  value  of  one  hundred  thousand  doUars  this  year 
and  have  capital  of  the  same  value  next  year.    We  think 
abstractly  of  certain  qualities  which  the  actual  objects 
have  in  common  from  year  to  year.    In  thinking,  for 
instance,  of  "my  capital  of  one  hundred  thousand  dollars," 
I  have  in  mind  only  three  things  with  regard  to  that  capital; 
namely,  productive  instruments  to  the  value  of  one  hun- 
dred thousand  doUars.    A  year  later  other  articles  may 
have  the  same   three  earmarks:    the  same  conception 
applies  to  them.    They  are  again  "my  capital  of  one 
hundred  thousand  doUars."    This  does  not  mean  that  the 


i- 


10 


QUARTERLY  JOURNAL  OF  ECONOMICS 


two  things  are  really  identical.  Very  likely  not  one  piece 
of  my  last  yearns  possessions  remains  this  year.  Very 
likely  this  year's  possessions  differ  in  various  ways  from 
last  year's,  and  are  identical  only  in  the  three  earmarks 
which  characterize  "my  capital  of  one  hundred  thousand 
dollars."  This  degree  of  continuity  suffices  to  justify 
the  application  of  the  same  conception;  but  it  is  clear  that 
the  continuing  element  is  not  something  embodied  in  the 
capital  goods,  but  a  mere  combination  of  certain  charac- 
teristics, which  are  pure  abstractions.  If  anything  is 
"embodied"  in  capital  goods,  it  is  not  something  different 
I  from  them,  but  simply  a  definition  of  them. 

It  is  significant  that  Professor  Clark  himself  admits  as 
much  as  this,  in  the  midst  of  prolonged  explanations  which 
are  designed  to  prove  just  the  contrary.  He  feels  that 
his  true  capital  must  be  something  real,  no  mere  scheme, 
no  empty  abstraction,  if  it  is  to  have  the  effects  ascribed 
to  it  in  explaining  concrete  phenomena,  and  especially 
the  phenomena  of  interest.  An  abstraction  cannot  spin 
yam  or  yield  interest.  He  takes  a  vast  amount  of  trouble 
to  make  it  plausible  that  his  true  capital  is  not  an  abstrac- 
tion, is  "a  material  entity."  This  proposition  he  develops 
with  constant  variations  of  language,  which  make  upon 
me  the  impression  that  they  are  as  full  of  inconsistencies 
as  of  obscure  mystical  rhetoric.  Were  it  not  for  the 
exigencies  of  space,  I  should  quote  in  full  four  or  five  pages 
(116-121)  of  his  book.  I  must  content  myself  with  some 
characteristic  specimens. 

At  the  very  outset  we  find  it  expressly  stated  that  capital 
has  a  "material  existence,"  that  it  is  always  "concrete  and 
material."  It  "consists"  of  concrete  and  material  in- 
struments of  production.  These  propositions  seem  un- 
deniable, but  one  wonders  that  they  should  be  adduced 
in  support  of  a  conception  of  capital  as  something  different 
from  concrete  and  material  instruments  of  production. 


■'i0 


f 


1 


If 


v 


CAPITAL  VS.  CAPITAL  GOODS 


11 


On  the  next  page  a  bridge  between  these  two  opposite 
notions  is  buUt  in  expressions,  already  famiUar  to  us, 
which  distinguish  the  permanence  of  capital  as  its    most 
distinctive  attribute"  from  the  perishableness  of  capital 
goods     And,  then,  on  the  difference  between  "concrete 
and  "  abstract "  we  find  the  following.     A  business  man  is 
put  before  us,  who  regards  his  capital  as  "embodied    m 
merchandise,    fixtures,    claims    against    customers.       A 
value,  an  abstract  quantum  of  productive  wealth,  a  per- 
manent fund-that  is  what  the  hundred  thousand  doUars 
in  our  illustration  really  signify.    A  value,  a  quantum  of 
wealth,  or  a  fund-if  one  of  these  be  thought  of  apart 
from  the  concrete  things  that  embody  it,  it  is  an  abstrac- 
tion- but  if  it  be  thought  of  as  actually  embodied  m  con- 
crete things,  it  is  not  an  abstraction,  but  a  material  entity. 
He  [the  business  man]  knows  that  his  investment  is 
ojncrete  and  material;  and  yet  he  instinctively  thinks  and 
speaks  of  it  through  the  medium  of  an  abstract  expres- 

""professor  Clark  warns  "carefully.  . .  against  the  idea  that 
capital  ever  lives  in  a  disembodied  state.'"  He  speaks 
of  the  frequent  use  of  abstract  formul*  in  every  sphere  of 
thought  for  describing  a  concrete  thing.'  He  now  re- 
linquishes his  former  expression,  "pure  capital,"  because 
the  word  "pure"  "suggests  freedom  from  some  admixture, 
and  the  admixture  that  is  excluded  is  a  combination  with 
concrete  objects,  such  as  tools,  ete.";  and  he  goes  on: 
"Yet  it  was  not  at  aU  my  intention  to  convey  the  idea  that 
pure  capital  is  something  that  can  objectively  exist  with- 
out being  m  such  a  combination.    It  is,  however,  thought 

»  Distribution  of  Wealth,  p-  119. 

a  TKiA    n   119-  lurain  p.  259:  "The  capital  of  society  has  no  existenoe  tiU  it  is 
» Ibid.,  p.  119,  again  p.  ^'^^  materials  and  tools  for 

has  no  existence  at  all.' 
•Ibid.,  p.  121. 


•AMP 


■>  r 


12  QUARTERLY  JOURNAL  OF  ECONOMICS 

of  in  ways  in  which,  in  the  concept  itself,  it  has  to  be 
freed  from  the  combination,  at  lasts/  as  we  say,  and  4t 
moves  from  industry  to  industry  ^  but  the  tools  do  not 
last,  and  they  do  not  change  their  places  as  working 
implements.  The  fund,  the  'dollars,'  or  the  pure  capital 
does  these  things.  When  one  set  of  bodies  perishes  and 
another  one  replaces  it,  we  say  that  capital  continues, 
and  yet  it  is  only  an  abstraction  thai  has  literally  a  continuous 
existence.  The  concrete  embodiments  of  the  abstraction 
have  only  transient  existences.  With  this  understanding, 
pure  capital  might  be  termed  capital  in  the  abstract, 
though  it  is  never  objectively  an  abstraction."' 

Let  the  unprejudiced  reader  judge  for  himself.    What 
glaring  contradiction  is  there,  between  saying  that  abid- 
ing true  capital  is  "concrete  and  material,"  is  a  "con- 
crete thing,"  "not  an  abstraction,  but  a  material  entity," 
and  the  final  admission  in  so  many  words  that  "yet  it  is 
only  an  abstraction  that  has  literally  a  continuous  exist- 
ence," and  that  perishable  capital  goods  are  embodiments 
of  the  abstraction?    What  a  quantity  of  flowery  expres- 
sions, of  new  words  and  new  figures,  which  repeatedly  try 
to  build  the  bridge  between  the  abstract  and  the  concrete; 
and  how,  through  all  these  efforts,  we  see  clearly  that  this 
bridge  consists  of  no  more  substantial  material  than  words 
and  figures!    It  is  obvious  that  capital  goods,  although 
they  are  supposed  to  be  distinct  from  pure  capital,  are  put 
forward  and  must  be  put  forward  in  order  to  give  any 
actual  point  of  connection  with  anything  concrete  and 
material.    Then  the  facts  are  thrust  into  the  background, 
and  in  the  foreground  we  have  these  forms  of  speech  and 
thought,  which  try  to  secure  for  the  pretender  the  recog- 
nition which  has  been  granted  to  capital  goods.    Instead 
of  anything  in  the  nature  of  proof  we  are  to  accept  as  evi- 
dence what  a  business  man  "thinks  and  speaks,"  or  that 

I  Distribution  of  Wealth,  p.  120,  in  the  note.     The  Italics  are  mine. 


f^ 


f» 


CAPITAL  VS.  CAPITAL  GOODS 


13 


•-':f 


<.    ' 


C^) 


} 


"it  lasts,  OS  we  say,"  or  "we  say  that  capital  continues 
The  obvious  objection  that  there  is  nothing  concrete  and 
material  in  capital  apart  from  capital  goods  is  evaded  by 
the  admission  that  true  capital  never  exists  mdependently, 
but  only  through  its  incorporation  in  concrete  capital 
goods     The  use  of  dialectics  is  here  so  reckless  that  it 
seems  to  me  to  turn  into  an  involuntary  disproof.    Pro- 
fessor Clark,  actually  in  support  of  his  o^v-n  reasomng, 
suggests  to  his  readers  that  they  shall  convert  the  ab- 
straction which  we  have  in  his  fund  of  value  into  a    ma- 
terial entity,"  by  giving  it  in  their  own  thoughts  this 
materialization.    Is  it  to  be  seriously  supposed  that  this 
need  of  having  the  concrete  capital  goods  in  our  thought 
is  any  sort  of  proof  that  anything  else  than  these  concrete 
capital  goods  constitutes  a  concrete  and  material  entity? 
On  the  contrary,  is  not  this  a  palpable  proof  that  these 
capital  goods  constitute  the  only  concrete  thmg?    Does 
not  Professor  Clark  see  that  with  this  same  dialectic  recipe 
the  most  undoubted  abstractions,  as  "vu-tue"  or  the 
conception  of  "goodness,"  can  be  converted  into  concrete 
things'    The  materiaUzation  of  these  abstractions  can 
be  brought  about  in  thought  by  reference  to  concrete 
virtuous  persons.    On  the  only  occasion  on  which  Professor 
Clark  appeals  to  facts  and  soberly  inquires  what  reaUy 
has  a  continuous  existence,  he  has  to  admit  that     it  is 
only  an  abstraction  that  has  literally  a  continuous  exist- 

ence ' '  ^ 

"To  be  or  not  to  be."  Does  it  exist  or  does  it  not  exist? 
That  is  the  question.  The  facts  seem  t«  me  very  sunple. 
In  reality,  concrete  capital  goods,  and  capital  goods  ever 
shifting,  are  the  only  things  that  exist  with  a  capacity  to 
effect  somethmg.  By  way  of  abstraction,  we  have  deduced 
from  these  the  conception  of  capital.  That  conception  does 
not  work  or  produce,  just  as  the  conception  of  a  hammer 
does  not  drive  a  nail.    If  we  ascribe  to  capital  any  real 


iiPIB*«l 


14  QVARTERLY  JOURNAL  OF  ECONOMICS 

effect  in  production,  we  mean  always  the  concrete  capital 
n?,     Sessor  dark  tries  to  intercalate  a  third  notion 

bedeck  a  phantom  with  the  verbal  attributes  of  existence^ 
T^e  object  of  science  is  to  disengage  from  their  often 
deS^tive  externals  the  real  kernel  of  facts.  Such  a  phm- 
tmSofessor  Clark's  brings  to  science  no  gam,  but  on^y 
toSa'd  confusion.   Professor  Qark  is  mistaken  in  thmkmg 

tt  his  creation  can  guard  him  or^^^^^^^^^^^ 
fl.nv  error  or  can  bnng  any  aid.    l^or  example, 
SLTai  the  older  economists,  in  their  ---ng  about  h 

relation  of  wages  to  capital  -V^%T"frwt  lelinS 
3.bsistence  of  lal^re.  -  P^^J   -^^^'J^pS.    I. 

EV5^S^i:^srrc:= 

1  ^h^h  ?lf eS:>r  Clark  does  not  develop;  namdy  the 
ItiTction  between  producers'  and .—..  capH^^ 

Professor  Clark  repeatedly  mamtams  that  there  are 
pr!;:r^  which  are  tenable  with  -f-ence  to  capital, 
LXhich  a^  not  tenable  with  reference  to  capital  f^^^^^^ 
woro  thprP  are  only  two  possibilities.  Either  we  nave 
Sy  veS^rexpriions,  rheterical  forms,  which  can  be 

propositions  can  be  applied  te  both,    in  mis 


CAPITAL  VS.  CAPITAL  GOODS 


15 


Kf) 


Cl^ 


> 


■tj 


may  possibly  be  some  gain  in  style,  some  attractive  form 
of  speech,  but  certainly  no  enriching  of  om-  understanding 
of  the  facts.  Or,  on  the  other  hand,  the  propositions 
which  have  been  laid  down  as  to  "capital"  cannot  be 
applied  to  "capital-goods,"  either  literally  or  with  any 
possible  variation  of  phraseology.  Their  content  in 
thought  cannot  be  verified  as  to  "capital  goods."  There 
they  are  certainly  false,  and  lead  not  to  better  under- 
standing, but  simply  to  error.* 

In  the  first  class,  of  harmless  turns  of  phrase,  belongs  the 
proposition  as  to  the  permanence  of  capital.     "Capital," 
on  pain  of  disaster,  "may  never  cease  to  be."    The  lan- 
guage here  used  cannot  be  transferred  without  a  distortion 
of  its  meaning  from  "capital"  to  "capital-goods,"  just 
as  such  an  expression  as  that  "  the  fleet  was  split  into  three 
parts  by  the  attack  of  the  enemy"  cannot  be  literally 
applied  to  the  individual  ships.    The  same  thought  can 
be  expressed  in  language  which  avoids  all  figures  of  speech 
by  saying,  "The  ships  which  previously  constituted  a  single 
fleet  were  split  by  the  enemy's  attack  into  three  groups." 
So  in  the  case  of  capital  it  might  be  said,  "In  order  that  the 
community  shall  not  suffer,  the  whole  value  of  the  capital- 
goods,  which  are  constantly  changing,  must  remain  un- 
diminished."   I  am  unable  to  see  that  an  investigator 
who  keeps  this  actual  state  of  things  constantly  before  his 
mind,  and  bases  conclusions  on  it,  suffers  any  disadvan- 
tage as  compared  with  another  who  applies  to  the  same 
facts  the  phrases  about  "permanent  capital." 

The  question  may  be  raised  how  far  an  mvestigator 
is  permitted  to  carry  the  use  of  this  and  similar  figures  of 
speech.  I  would  not  preach  asceticism  in  style,  or  be  so 
pedantic  as  to  condemn  every  mode  of  expression  which 
departs  from  a  literal  statement  of  facts.  I  do  not  myself 
hesitate  to  use  figures  of  speech.    Harm  ensues  only  if  the 

>  See,  for  example,  Diatribution  of  Wealth,  p.  121,  note. 


)    r 


^iUmm' 


y 


'  u 


16 


QUARTERLY  JOURNAL  OF  ECONOMICS 


investigator  allows  himself  to  be  misled  by  such  metaphors, 
and,  instead  of  keeping  in  view  steadily  the  actual  facts, 
puts  before  his  eyes  something  which  is  only  a  creation  of 
speech. 

Let  us  now  take  an  example  of  the  second  and  dangerous 
consequence  of  Professor  Clark's  mode  of  dealing  with  the 
subject.  Such  appears,  it  seems  to  me,  in  the  proposition 
stated  on  page  118  and  again  repeated  on  page  258,  that 
"capital  is  perfectly  mobile,"  "absolutely  mobile,"  while 
capital  goods  are  not. 

Professor  Clark  maintains  that  "  it  is  possible  to  take  one 
million  dollars  out  of  one  mdustry  and  put  them  into 
another,"  but  that  this  is  quite  impossible  as  to  capital- 
goods.  The  instruments  used  in  a  whale  fishery  cannot  be 
transferred  to  cotton  manufacturing.  Thence  Professor 
Clark  deduces  a  proposition  that  capital  as  distinguished 
from  capital  goods  is  perfectly  mobile— a  proposition 
which,  like  that  on  the  permanence  of  true  capital,  serves 
to  disprove  the  identity  of  capital  and  capital  goods. 

But  Professor  Clark  cannot  really  believe  that  such  a 
change  can  take  place  on  an  unlimited  scale,  that  a  thou- 
sand million  dollars  can  change  occupation  as  easily  as  a 
million  dollars;  that  there  can  be  a  transmigration  of  all 
the  capital  of  the  United  States  into  different  industries,  its 
transfer  into  other  "material  bodies."  If  not,  how  main- 
tain that  "perfect,"  "absolute"  mobility  which  Professor 
Clark  ascribes  to  true  capital? 

We  grasp  the  truth  readily,  if  we  set  aside  resounding 
phrases  and  look  soberly  at  the  facts.  In  regard  to  these 
I  am  quite  in  accord  with  Professor  Clark  as  he  describes 
them  in  various  passages  (for  instance,  p.  341).  In  fact, 
not  unfrequently  Professor  Clark  gives  two  versions  of  the 
same  phenomena,  one  m  sunple  terms  quite  in  accord 
with  the  facts,  and  the  other  in  artificial  expressions  which 
refer  everything  to  that  favorite  creature  of  his  imagination, 


f. 


^ 


i      t       V 

t! 


t  *  1  t-^ 


CAPITAL  VS.  CAPITAL  GOODS 


17 


true  permanent  capital.    It  is  certam  that  there  are 
comparatively  few  instruments  of  production  (Professor 
Clark  mentions  land  as  one  of  them)  which  can  change 
their  mode  of  use  without  actual  loss.    In  most  cases 
such  a  change  can  take  place  only  with  considerable  loss, 
with  some  diminution  in  efliciency,  or  with  some  expense 
for  remodelling.    If  for  any  reason  it  becomes  desirable 
to  diminish  the  capital  used  in  any  one  branch  of  production 
and  to  increase  the  capital  used  in  another,  the  change 
takes  place  only  in  slight  degree  by  the  actual  transfer  of 
concrete  capital  goods.    Ordinarily  it  takes  place  through 
the  wearing  out  of  those  capital  goods  which  it  is  desu^d  to 
diminish  in  quantity,  and  the  creation  in  then-  place,  not 
of  the  same  instruments,  but  of  others  of  a  different  kmd. 
In  every  industry  there  are  many  forms  of  capital  goods 
which  wear  out  quickly  and  have  to  be  constantly  renewed. 
Hence,  as  a  rule,  it  is  possible  to  effect  transfers  of  this  kind 
quickly  and  without  great  loss.    The  existence  of  durable 
instruments,  which  wear  out  but  slowly,  may  cause  long 
delay  in  the  process.^ 

Such  are  the  facts  on  which  both  of  us  have  agreed. 
Now  I  ask.  How  are  we  to  conceive  these  facts,  if  the  phrases 
about  the  perfect  and  absolute  mobiUty  of  true  capital 
are  not  empty  words,  but  scientific  truth?    Perfect  mo- 
bility is  supposed  to  be  a  universal  characteristic  of  true 
capital,  belonging  to  it  irrespective  of  capital  goods  in 
which  the  true  capital  is  embodied.    In  contrast  to  the 
f  incomplete  mobility  of  capital-goods,   this  mobility  of 
capital  is  supposed  to  be  absolute  and  complete.    Can 
this  mean  anything  else  than  that  true  capital  can  betake 
itself  with  absolute  ease  and  freedom  to  another  form  and 
another  use  ?^ 
<» 

^  DiatT'Omtion  of  Wealth,  pp.  341,  342;  alao  278. 

»  "The  goods  that  embody  the  capital  are  as  fettered  in  their  movements  as 
th*  capital  itself  is  free"  (p.  257). 


^Jr-mtm  m 


1 


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QUARTERLY  JOURNAL  OF  ECONOMICS 


But  would  Professor  Clark  maintain  that  there  is  any 
fact  of  this  sort?    Does  not  every  fact  which  he  adduces 
indicate  precisely  the  opposite;  namely,  that  the  transfer 
and  transformation  of  capital   in  fact  takes  place   not 
without  limit  or  without  conditions?    Secondly,  is  not  the 
extent  and  rapidity  of  this  change  dependent  upon  the 
concrete  nature  of  the  capital-goods?    The  change  takes 
place  rapidly  and  easily,  if  the  capital  goods  are  easily 
susceptible  of  use  in  a  different  occupation,--coal,  for  ex- 
ample, or  pig  iron,— or  if  they  are  such  as  wear  out  rapidly. 
And  the  change  takes  place  slowly,  perhaps  not  at  aU, 
if  the  capital-goods  are  of  a  kind  which  cannot  be  used 
for  another  purpose,  or   are   so  durable  that  their  re- 
placement is  necessarily  spread  over  a  long  period.    The 
whole  subject  of  the  transfer  of  capital  must  be  studied 
with  reference  to  capital-goods. 

The  fact  that  a  later  generation  of  capital  goods  consists 
of  other  constituents,  and  perhaps  is  differently  appor- 
tioned among  the  various  branches  of  the  industry,  may 
be  expressed  in  a  figure  of  speech,  and  with  a  sort  of  per- 
sonification, by  saying  that  capital,  which  is  movable, 
has  changed  its  form  and  its  mode  of  use.    To  such  a 
statement  I  have  nothing  to  object,  so   long  as   it  is 
clearly  borne  in  mind  that  it  is  nothing  more  than  a  figure 
of  speech.    But  it  is  not  to  be  supposed  that  the  under- 
standing of  the  actual  situation  is  thereby  promoted,  still 
less  that  anything  is  understood  which  before  was  not 
understood.    And  when   this  figure  of  speech  is  finaUy 
carried  to  the  point  where  it  no  longer  conforms  to  reality, 
then  there  is  simply  a  mistake  in  fact:  Clark's  perfect  and 
absolute  mobility  is,   to  put  it  plainly,  perfectly  and 
absolutely  false. 

Professor  Clark  has  saved  himself,  in  the  course  of  his 
own  exposition,  from  obvious  inconsistency  with  the  facts, 
because  he  has  been  careful  not  to  take  his  words  too 


i' 


CAPITAL  VS.  CAPITAL  GOODS 


19 


literally.    As  has  already  been  observed,  he  develops  a 
second  and  very  sober  treatment  of  this  same  subject  of 
capital  goods,  and  steadily  uses  only  such  examples  and 
arguments   as   fit   this   second   realistic   treatment.    He 
adduces  as  an  example  of  the  perfect  mobility  of  capital, 
the  transfer  of  a  million  dollars  from  one  branch  of  industry 
to   another.    The   example   does   not   suggest   anything 
impossible,  because  in  an  economic  organization  as  huge 
as  that  of  the  United  States  it  is  quite  possible  that  concrete 
capital  goods  of  this  value,  even  to  a  much  greater  value, 
fulfil  the  conditions  for  easy  transfer  and  easy  replacement. 
But,  if  the  sum  mentioned  were  a  thousand  or  ten  thousand 
tunes  as  great,  the  example  would  have  shown  clearly  the 
impossibility  of  the  change  assumed,  and  Professor  Clark 
has  been  careful  not  to  select  such  an  example.    And 
wherever  he  makes  a  practical  application  of  his  proposi- 
tion, he  never  fails  to  say  with  much  emphasis  that  the  proc- 
ess of  transferring  "true  capital"  does  not  take  place  in  the 
smooth  and  rapid  manner  which  would  result  from  ab- 
solute and  perfect  mobility,  but  with  those  obstacles  and 
delays  which  result  from  the  material  constitution  of 
concrete  capital  goods. '    And  where  by  way  of  exception 
he  suggests,  tho  without  absolutely  stating  it,  a  sudden 
and  frictionless  transformation,  he  invokes  the  hypothesis 
of  "magic."^    Here  Clark,  the  shrewd  observer  of  facts, 
has  exercised  a  friendly  control  over  Clark,  the  unaginative 
artist  in  words,  and  has  prevented  him,  if  not  from  ex- 
pressing error,  at  least  from  drawmg  erroneous  practical 
conclusions.    Unfortunately,  as  will  appear  m  the  sequel, 
the  emph-ical  Clark  has  not  always  exercised  this  same 
degree  of  watchfulness. 

Another  of  those  glittering  antitheses  to  which  Professor 
Clark  has  given  too  much  place  in  the  development  of 
his  scientific  conclusions,   sets  forth  that   capital  goods 

1  Distribution  of  WeaUh,  p.  278.  *  Ibid.,  p.  251. 


\ 


^V  '^MUdJ^te 


\     ' 


QUARTERLY  JOURNAL  OF  ECONOMICS 


"ripen"  into  consumable  goods  and  have  to  do  with  phases 

of  development  and  periods  of  production.    True  capital 

I   has  no  such  characteristics.    "Capital ...  has  no  periods. 

I   .  .  .  Capital,  as  such,  does  not  originate,  mature  and  then 

I  exhaust  itself.  ...  No  permanent  capital  ever  ripens  and 

I  begins  to  mmister  to  dbect  wants :  immaturity  is  of  the 

nature  of  capital."^ 

This  antithesis  has  the  same  character,  and  as  much 
and  no  more  value  in  explaining  the  facts  as  others  of  the 
same  sort;  for  instance,  that  individual  caterpillars  go 
through  phases  of  development  and  eventually  become 
butterflies,  but  that  the  caterpillar  "as  such"  never  be- 
comes a  butterfly;  or  that  children  become  men,  but  that 
"childhood  as  such"  never  becomes  "old  age."    If  the 
object  here  is  only  to  state  in  an  effective  figure  of  speech 
the  commonplace  fact  that  capital  goods  ripen  into  con- 
sumable goods,  and  caterpillars  become  butterflies,  but 
that  these  things  do  not  pass  out  of  the  earlier  stage  into 
the  later  so  long  as  they  belong  to  the  class  of  capital 
goods  or  the  species  of  caterpillars— that  capital  never 
includes  the  consumable  goods,  and  that  caterpillars  never 
include  butterflies— then    there  is  no  objection  to    the 
phraseology.    But  surely  no  one  can  believe  that  it  leads 
to  any  new  understanding  of  the  phenomena.    If,  how- 
ever, such  antitheses  mean  more,  if  they  are  supposed 
to  bring  new  important  information  about  a  second  set  of 
things  with  different  powers  and  different  qualities,  to  show 
that  things  happen  with  "true  capital"  or  with  "capital  as 
such"  which  are  realities  and  which  are  different  from  the 
thmgs  which  happen  to  the  concrete  things  or  the  living 
caterpillars,  then  they  are  simply  deceptive.    What  would 
the  biologists  say  if  a  colleague  of  Professor  Clark  were  to 
maintain  that  in  addition  to  the  concrete  caterpillars, 
which  ripen  mto  butterflies,  there  is  in  nature  something 

^DiHrHnUum  of  WeaUh,  p.  128. 


< 


I 


CAPITAL  VS.  CAPITAL  GOODS 


21 


else  which  never  gets  beyond  the  stage  of  unripeness,  of 
caterpillamess,  which  has  no  phases,  and  which,  never- 
theless, leads  to  the  eventual  appearance  of  the  butterflies; 
and  if  such  an  innovating  biologist  were  to  maintain  that 
the  biological  conditions  of  the  lepidoptera  could  be  under- 
stood only  by  referring  them  to  a  permanent  and  non- 
developing  entity  which  always  had  the  qualities  of  cater- 
pillar, but  never  was  really  caterpillar  and  never  became 
a  butterfly? 

I  fear  that  Professor  Clark  falls  into  error  no  less  grave 
when  he  maintains  that  there  are  actual  happenings  in 
the  production  of  commodities,  in  which  capital  plays  its 
part,  but  in  which  the  interval  between  production  and 
consumption  is  done  away  with,  and  in  which  labor  and 
its  fruits  are  "synchronized."  But  here  I  touch  on  a 
matter  which  cannot  be  briefly  disposed  of.  I  do  no  more 
than  touch  on  it,  because  it  belongs  not  to  this  preliminary 
discussion  of  the  question  whether  Professor  Clark's  con- 
ception of  capital  is  or  is  not  a  happy  scientific  device, 
but  to  the  more  essential  question  to  which  I  shall  next 
turn;  namely,  whether  Professor  Clark  has  given  an  ex- 
planation of  interest  which  is  in  substance  satisfactory. 
To  this  problem  I  shall  turn  in  the  following  paper. 


E.  Bohm-Bawerk. 


Vienna. 


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CAPITAL  AND  INTEREST  ONCE  MORE: 


II.   A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY 


BY 


E.  BOHM-BAWERK 


reprinted  from 

The  Quarterly  Journal  of  Economics 

Vol.  XXI.,  February,  1907. 


\ 


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O'  KaJ\.'^\^^^^ 


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^^ 


•    t    •     -^  ^7  ^^    •    •    • 

QUARTERLY  JOURNAL    OF  ECONOMICS 

Published  for  Harvard  University 

Is  established  for  the  advancement  of  knowledge  by  the  full  and  free  discussion 
of  economic  questions.     The  editors  assume  no  responsibility  for  the  views  of 
contributors^  beyond  a  guarantee  that  they  have  a  good  claim  to  the  attention  of 
well-informed  readers. 

Communications  for  the  editors  should  be  addressed  to  the  Quarterly  fournal 
of  Economics^  Cambridge,  Mass.;  business  communications  and  subscriptions 
{$J.oo  a  year),  to  Geo.  H.  Ellis  Co.,  2/2  Congress  Street,  Boston,  Mass. 


CONTENTS  FOR  NOVEMBER,  1906i 

I.    CAPITAL  AND  INTEREST  ONCE  MORE  :      I.    Capital  versus  Capi- 
tal Goods.  E.  Bbhm-Bawerk 

II.    THE   INTERSTATE  COMMERCE  ACT  AS  AMENDED     .        .         .    Frank  Haigh  Dixon 

III.  THE  TAXATION  OF  PERSONAL  PROPERTY  IN  PENNSYL-    . 

VANIA Rowell  C.  McCrea 

IV.  THE  TELEPHONE  IN   GREAT  BRITAIN A.  N.  Holcombe 

V.    CO-OPERATION   IN  THE  APPLE  INDUSTRY  IN   CANADA         .  R.  H.  Coats 

NOTES    AND  MEMORANDA: 

Seligman's  "Principles  of  Economics":  A  Reply  and  a  Rejoinder 

E.  R.  A.  Seligman  and  F.  W.  Taussig 
RECENT  PUBLICATIONS  UPON   ECONOMICS. 


<' 


CONTENTS  FOR  FEBRUARY,   1907, 

I.    THE  TAXATION  OF  CORPORATIONS  IN   MASSACHUSETTS'  .      Charles  J.  Bullock 

II.    CAPITAL  AND  INTEREST  ONCE   MORE:    II.    A  Relapse  to  the 

Productivity   Theory E.  Bohm-Bawerk 

III.  CONSTANT      AND     VARIABLE      RAILROAD     EXPENDITURES 

AND  THE   DISTANT  TARIFF  M.  O.  Lorenz 

IV.  THE    SOCIALIST     ECONOMICS     OF     KARL    MARX     AND     HIS 

FOLLOWERS.     II Thorstein  Veblen 

V.    LABOR  ORGANIZATION  AND  LABOR  POLITICS,   1827-37     .        ,     John  R.  Commons 

NOTES  AND  MEMORANDA: 

An  Assize  of  Bread  at  Mobile,  Alabama William  O.  Scroggs 

The  German  Imperial  Inheritance  Tax Frank  A.  Fetter 

RECENT  PUBLICATIONS. 


i  ^ 


A9 


CAPITAL   AND    INTEREST    ONCE   MORE:    II.    A 
RELAPSE  TO  THE  PRODUCTIVITY  THEORY. 

I. 

Professor  Clark  develops  an  explanation  of  interest 
which  seems  to  me  to  turn  once  more  into  the  paths  of 
a  genuine  theory  of  productivity;  that  is,  a  theory  which 
finds  the  effective  and  adequate  explanation  of  interest 
in  a  productive  power  belonging  to  capital  as  such.  Pro- 
fessor Seager  seems  to  me  to  have  followed  him.^  I  say 
''it  seems  to  me  so,"  for  both  clearly  express  themselves 
in  this  way;  yet  both  give  intimations  of  another  mode  of 
looking  at  the  subject,  to  which  in  due  time  I  shall  give 
attention. 

The  main  elements  of  the  explanation  which  Professor 
Clark  gives  of  the  origin  of  interest  seem  to  me  to  be  the 
following. 

The  generic  feature  of  his  theory  of  distribution  is  the 
proposition  that  in  a  static  state  of  society,  in  which  all 
values,  wages  and  interest  attain  their  normal  level, 
each  factor  or  agent  of  production  brings  to  its  owner  as 
much  income  as  it  has  turned  out  in  way  of  product. 
''Products  and  shares  coincide." 

The  productive  agents,  according  to  Clark,  are  three,— 

»For  example,  Professor  Qark  says  (p.  135),  with  the  emphasis  of  italics, 
"the  power  of  capital  to  create  product  is  the  basis  of  mterest,"  and  he  thinks  it 
superfluous  to  justify  interest  on  the  ground  of  "economic  merit"  (p.  134).  Pro- 
fessor Seager  (pp.  276,  277)  expressly  entiUes  the  theory  set  forth  by  himself  the 
••productivity  theory."  He  pomts  out  that  the  characteristic  earmark  of  his 
theory,  as  opposed  to  mine,  is  that  the  surplus  which  goes  to  the  capitalist  as  in- 
terest for  repay mg  all  his  outlays  "is  ascribed  wUhout  any  attempt  at  analysis  to 
the  productiveness  of  capital  goods."     But  see  below,  pp.  249,  275. 


.     ^ 


INTENTIONAL  SECOND  EXPOSURE 


■  Ki 


J).>a-^ 


.  .  .  THK  .  .  . 

QUAR  TERL  Y  JO  URN  A  L    OF  ECONOMICS 

Published  for  Harvard  University 

Is  established  for  the  advancement  of  knowledge  by  the  full  and  free  discussion 
of  economic  questions.     The  editors  assume  no  responsibility  for  the  views  of 
contributors,  beyond  a  guarantee  that  they  have  a  good  claim  to  the  attention  of 
well-informed  readers. 

Communications  for  the  editors  should  be  addressed  to  the  Quarterly  foumal 
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{tj.oo  a  year),  to  Geo.  H.  Ellis  Co.,  272  Congress  Street,  Boston,  Mass. 

CONTENTS  FOR  NOVEMBER,  1906i 

I.    CAPITAL  AND  INTEREST  ONCE  MORE :      I.    Capital  vernui  Capi- 
tal Goods E.  Bbhm-Bawerk 

II.    THE  INTERSTATE  COMMERCE  ACT  AS  AMENDED     .  Frank  Haigh  Dixon 

III.  THE  TAXATION  OF  PERSONAL  PROPERTY  IN  f»ENNSYL-    . 

VANIA Rowell  C.  McCrea 

IV.  THE  TELEPHONE  IN  GREAT  BRITAIN A.  N.  Holcombe 

V.    CO-OPERATION   IN  THE  APPLE  INDUSTRY  IN   CANADA         .  R.  H.  Coats 

NOTES    AND  MEMORANDA: 

Seligman's  "Principles  of  Economics":  A  Reply  and  a  Rejoinder 

E.  R.  A.  Seligman  and  F.  W.  Taussig 

RECENT  PUBLICATIONS  UPON   ECONOMICS. 


< 


CONTENTS  FOR  FEBRUARY,  1907. 

I.     THE  TAXATION   OF  CORPORATIONS   IN   MASSACHUSETTS'  .      Charles  J.  Bullock 

II      CAPITAL  AND   INTEREST  ONCE   MORE:    II.     A  Relapse  to  the 

Productivity  Theory E.  Bohtn-Bawerk 

III.     CONSTANT      AND     VARIABLE      RAILROAD     EXPENDITURES 

AND  THE  DISTANT  TARIFF  M.  O.  Lorenx 

IV     THE    SOCIALIST    ECONOMICS     OF     KARL    MARX     AND     HIS 

FOLLOWERS.    II Thorstein  Veblen 

V.    LABOR  ORGANIZATION  AND  LABOR  POLITICS,   1827-37     .        .     John  R.  Commons 

NOTES  AND  MEMORANDA: 

An  Assixe  of  Bread  at  Mobile,  Alabama William  O.  Scroggs 

The  German  Imperial  Inheritance  Tax Frank  A.  Fetter 

RECENT  PUBLICATIONS. 


i! 


AS 


»  I 


% 


CAPITAL   AND    INTEREST    ONCE   MORE:    II.    A 
RELAPSE  TO  THE  PRODUCTIVITY  THEORY. 

I. 

Professor  Clark  develops  an  explanation  of  interest 
which  seems  to  me  to  turn  once  more  into  the  paths  of 
a  genume  theory  of  productivity;  that  is,  a  theory  which 
finds  the  effective  and  adequate  explanation  of  interest 
in  a  productive  power  belonging  to  capital  as  such.  Pro- 
fessor Seager  seems  to  me  to  have  followed  him.'  I  say 
"it  seems  to  me  so,"  for  both  clearly  express  themselves 
in  this  way;  yet  both  give  intimations  of  another  mode  of 
looking  at  the  subject,  to  which  in  due  time  I  shall  give 
attention. 

The  main  elements  of  the  explanation  which  Professor 
Clark  gives  of  the  origin  of  interest  seem  to  me  to  be  the 

following. 

The  generic  feature  of  his  theory  of  distribution  is  the 
proposition  that  in  a  static  state  of  society,  in  which  all 
values,  wages  and  interest  attain  their  normal  level, 
each  factor  or  agent  of  production  brings  to  its  owner  as 
much  income  as  it  has  turned  out  in  way  of  product. 
"Products  and  shares  coincide." 

The  productive  agents,  according  to  Clark,  are  three,— 

1  For  example.  Professor  aark  says  (p.  135),  with  the  emphasis  of  italics, 
••the  power  of  capital  to  create  product  is  the  basis  of  interest,"  and  he  thinksrt 
superfluous  to  justify  interest  on  the  ground  of  "economic  merit"  (p.  134).  Pro- 
fessor Seager  (pp.  276,  277)  expressly  entitles  the  theory  set  forth  by  himself  the 
••productivity  theory."  He  points  out  that  the  characteristic  earmark  of  hw 
theory  as  opposed  to  mine,  is  that  the  surplus  which  goes  to  the  capitalist  as  m- 
terest  for  repaying  all  his  outlays  "is  ascribed  with4Ait  any  aUempl  at  analysu  to 
the  productiveness  of  capital  goods."    But  see  below,  pp.  249,  276. 


)  / 


mm 


248 


QUARTERLY  JOURNAL  OF  ECONOMICS 


labor,  capital  (with  which  Clark  classes  land  also),  and 
the  function  of  the  entrepreneur,  which  branches  off  from 
labor.  Corresponding  to  these  three  agents  are  wages, 
interest,  and  profit.  And  the  general  proposition  stated 
in  the  preceding  paragraph  takes  this  more  concrete  form:^ 
"Free  competition  tends  to  give  to  labor  what  labor 
creates,  to  cajyitalists  wlmt  capital  creates,  and  to  entre- 
preneurs what  the  co-ordinating  function  creates."  ^ 

These  agents  usually  co-operate  in  production  towards  a 
joint  result.  But  this  does  not  prevent  us  from  marking 
off  the  contribution  which  each  separately  makes.  The 
study  of  distribution  resolves  itself  into  an  analysis  of 
this  problem;  that  is,  into  a  study  of  ^^ specific  production." 
"It  is  an  analysis  of  the  wealth-creating  operation,  and 
a  tracing  to  each  of  the  three  agencies  that  together  bring 
wealth  into  existence,  of  the  part  which  it  separately  con- 
tributes to  the  joint  result."  ^  As  an  instnmient  for  this 
analysis,  the  theory  of  imputation  serves, — a  theory  which 
Professor  Clark  handles  on  the  same  principles  which  the 
Austrian  economists  have  followed  on  similar  subjects.' 
The  drift  of  it  is  that  we  must  ascertain  how  much  of  the 
product  would  be  lost,  or  how  much  would  be  gained, 
according  as  the  factor  in  question,  or  one  unit  of  such 
factor,  is  absent  or  present.*  I  will  not  enter  on  any 
prolonged  exposition  of  this  topic,  since  it  is  familiar  to 
every  one  conversant  with  modern  economic  theory, 
and  since  I  am  in  entire  accord  on  it  with  Professor 
Clark.  It  leads  to  the  conclusion  that  the  increase 
in  product  due  to  the  last  unit  of  any  factor  in  produc- 


» Page  3. 


>/&u2. 


3  Professor  Clark  uses  the  expression  econoinic  causation  (p.  323).  Sometimes 
he  speaks  of  the  shares  which  are  "attributable"  or  "imputable"  to  each  agent, 
"can  be  traced"  or  "are  due"  to  it. 

*  For  instance,  (p.  178),  "The  effective  value  of  any  unit  of  labor  is  always  what 
the  whole  society  with  all  its  capital  produces,  minus  what  it  would  produce  if 
that  unit  were  to  be  taken  away." 


h 


n   * 


%^ 


*« 


«» 


^ 


A  RELAPSE  TO    THE  PRODUCTIVITY  THEORY     249 

tion — the  final  increment — is  the  measure  of  what  is  to 
be  ascribed  to  each  unit.  Specific  productivity  is  final 
productivity. 

This  general  theory  of  imputation  Professor  Clark  ap- 
plies to  capital.  It  is  characteristic  that  he  believes  it 
possible,  on  this  principle  alone,  to  solve  the  problem  of 
capital  directly  and  exhaustively,  without  recourse  to  any 
notions  about  abstinence  *  or  any  other  theories,  such  as 
mine  on  the  influence  of  the  varying  length  of  the  produc- 
tive period.  The  single  premise  that  capital  is  productive, 
and  is  limited  in  amount,  suffices  to  give  a  direct  and  com- 
plete explanation  of  the  fact  that  capital  yields  a  net  return 
of  a  specific  amount  which  accrues  to  its  owner  as  interest. 
In  all  this  I  find  the  characteristic  traits  of  a  true  theory 
of  productivity.^ 

This  theory  seems  to  me  to  fail  at  the  same  point  and 
on  the  same  grounds  as  others  of  the  same  sort.  It  makes 
a  logical  slip  in  order  to  find  in  the  productivity  of  capital 
the  cause  of  true  interest.  It  operates  with  sound  prin- 
ciples of  imputation;  but  at  the  critical  point  it  passes 
by,  in  silence,  one  link  in  the  theory  of  imputation,  and 
precisely  that  link  at  which  the  real  problem  of  interest 
emerges  and  ought  to  be  solved. 

^  I  shall  say  something  later  of  the  not  entirely  consistent  position  of  Professor 
Clark  on  this  subject  of  abstinence.     See  p.  275. 

2  On  this  point  I  am  in  accord  with  Professor  Seager,  who  expressly  entitles 
Professor  Clark's  theory  and  his  own  a  productivity  theory.  I  take  it  I  am  also 
in  accord  with  Professor  Clark  himself,  who  refers  to  the  close  resemblance  of  his 
own  theory  to  Thtinen's  theorj'  of  productivity  (see  p.  321,  ff,  note).  For  myself, 
I  think  it  has  closer  resemblance  to  Wieser's  theory,  which  also  belongs  to  the 
productivity  group.  I  still  believe  that  the  productivity  and  abstinence  theories^ 
are  different,  and  therein  differ  ■w-ith  Professor  Cassel,  who  is  disposed  to  obliterate 
the  boimdaries  between  the  two.  Whoever  follows  clearly  and  consistently  the 
reasoning  of  these  theories — which  Professor  Cassel,  to  be  sure,  does  not  seem  to 
do — will  hardly  find  it  possible  to  regard  them  as  belonging  together  as  two  forms 
of  the  same  train  of  thought,  or  as  indicating  the  play  of  demand  and  supply  on 
the  same  phenomenon.  On  the  contrary,  he  will  soon  reach  a  point  where  the 
further  prosecution  of  the  one  principle  excludes  the  consideration  of  the  other. 


/ 


i?!^^^^*  en  jj' 


Hi 


250 


QC/ilftr^iiLy  JOURNAL  OF  ECONOMICS 


II. 


It  is  not  easy  to  select  from  the  remarkably  homogene- 
ous fabric  of  Clark^s  theory  of  distribution  separate  pas- 
sages as  those  most  significant  of  his  mode  of  reasoning. 
I  believe,  however,  that  I  may  refer  to  two,  which  are 
developed  as  two  parts  of  Chapter  XII.,  entitled  "Final 
Productivity  the  Regulator  of  both  Wages  and  Interest." 
In  the  first  part,  the  principle  of  imputation  is  used  nega- 
tively to  prove  that  the  whole  product  which  arises  from 
the  co-operation  of  labor  and  capital  is  not  to  be  ascribed 
to  labor  or  to  accrue  to  the  laborer  as  wages.  In  the 
second,  it  is  used  positively  to  show  that  capital  gets  a 
net  yield,  which  is  the  fruit  of  its  final  productivity. 

The  negative  proof  had  already  been  intimated  in  earlier 
passages  in  the  book.  Professor  Clark  there  pointed  to  the 
all-important  distinction  between  the  whole  product  of 
industry  and  the  whole  product  of  labor.  It  is  clear,  he 
says,  that  "the  whole  product  of  industry  does  not  go  to 
the  worker."  For  "industry  involves  the  co-operation  of 
labor  and  capital."  The  men  who  furnish  lands,  tools, 
building  materials,  receive  a  share  of  the  entire  joint 
product  of  labor  and  capital.  As  the  whole  product  of 
labor  we  are  to  imderstand  the  part  of  this  total  that  is 
attributable  to  labor  itself.  It  is  not  only  possible,  but 
under  complete  competition  it  is  certain  that  this  part 
will  go  to  the  laborer  as  wages.* 

It  is  superfluous  to  inquire  whether  Professor  Clark, 
in  these  preliminary  remarks,  wishes  merely  to  bring  his 
proposition  to  the  reader's  notice  or  whether  he  believes 
he  is  adding  something  towards  its  proof.  For  in  any 
case  he  has  undertaken  the  proof  of  the  proposition  in 
much  clearer  terms  and  with  an  effort  at  mathematical 
exactness,  in  another  place,  the  first  half  of  Chapter  XII. 

*  Pages  82,  83. 


i 


*, 


A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY     251 

Here  Professor  Clark  assumes  that  in  an  isolated  soci- 
ety there  are  one  thousand  laborers,  and  that  at  their 
disposal  stand  "a  hundred  million  dollars'  worth  of  capi- 
tal" (let  the  reader  note  the  precise  words).  He  sets 
forth  (and  we  should  all  agree  with  him)  that  in  conse- 
quence of  the  "rich  environment  that  these  conditions 
afford"— they  mean  a  capital  of  $100,000  per  head— the 
product  of  these  thousand  laborers  per  capita  will  be 
enormous.  Every  laborer  will  have  at  his  command,  in 
extravagant  amount,  the  best  and  most  effective  materials 
and  machines.  Suppose  now  an  additional  thousand 
laborers,  capital  remaining  the  same.  Each  laborer  will 
now  have  at  his  command  a  capital  of  $50,000  instead  of 
$100,000.  This  capital  will  have  to  take  the  form  of  in- 
struments which  are  on  the  average  cheaper  and  less 
effective  than  those  which  represent  a  capital  of  $100,000 
per  head.  Consequently,  the  output  per  man  will  be  less 
than  before.  So  far  still  we  are  completely  in  agreement 
with  Professor  Clark. 

He  proceeds  then  to  an  observation  equally  acute  and 
pertinent,  and  again  to  be  fully  agreed  to.  How  much 
of  the  product,  he  asks,  is  to  be  ascribed  to  this  second 
thousand  laborers?  The  whole  of  the  lessened  output 
per  man,  or  everything  which  "this  increment  creates  by 
the  aid  of  the  capital  that  the  earlier  division  of  workers 
has  surrendered  to  it"?  Certainly  not.  Only  so  much 
as  "its  presence  adds  to  the  product  previously  created." 
And  here  it  must  be  remembered  that  because  of  its 
presence  a  "minus  quantity"  arises.  The  presence  of 
the  second  thousand  of  laborers  having  diminished  the 
endowment  of  capital  from  $100,000  to  $50,000  per  head, 
the  first  thousand  laborers  now  operate  with  less  aid 
from  capital,  and  therefore  with  a  lessened  output.  And 
this  diminution  in  output  must  be  made  good  out  of  the 
increased  output  of  the  whole  two  thousand  before  we 


II 


.'i  \ 


iittf 


252  QUARTERLY  JOURNAL  OF  ECONOMICS 

can  ascertain  the  amount  which  the  presence  of  the 
second  thousand  adds.    The  amount  really  due  to  the 
additional  laborers  is,  therefore,  less  than  the  product 
which  the  second  thousand  turn  out  with  the  aid  of  capi- 
tal.   In  other  words,  we  impute  to  the  second  thousand 
less  than  the  total  product  which  they  turn  out  with  the 
aid  of  capital.    But  on  the  principle  of  final  productivity, 
the  increment  due  to  the  last  unit  determines  how  much 
is  to  be  ascribed  to  each  unit.    It  follows  that  the  whole 
of  the  product  turned  out  by  laborers  with  the  aid  of  capi- 
tal is  not  ascribable  to  the  laborers  alone.    Professor  Clark 
illustrates  this  train  of  thought  with  a  diagram  which  I 
may  assume  to  be  familiar  to  the  readers  of  this  Journal.' 
I  now  ask  whether  aU  this  reasoning,  m  which  each  step 
has  my  complete  approval,  really  serves  to  prove  that 
which  it  is  meant  to  prove;  namely,  that  the  whole  product 
of  labor  and  capital  is  not  to  be  ascribed  to  labor  alone. 

I  answer,  no.    So  far  as  the  reasoning  concerns  the  rela- 
tion of  labor  to  what  Clark  caUs  artificial  capital  (that  is, 
to  intermediate  products  which  arise  from  previous  labor),' 
it  overlooks  the  main  element  of  the  problem  and  owes  its 
plausibility  to  an  ambiguity  arising  from  that  ominous 
notion  of  "true  capital."    The  germ  of  this  ambiguity 
appears  in  the  very  first  words  in  Professor  Clark's  ex- 
ample.   He  says    "give   to   this   isolated  community  a 
hundred  miUion  dollars'  worth  of  capital."    This  expres- 
sion is  obviously,  and  probably  intentionaUy,  derived  from 
the  vocabulary  which  Professor  Clark  uses  for  his  true 
capital.    But  what  actual  state  of  affau^  does  he  assume? 
What  persons  and  what  concrete  factors  in  production 
does  this  isolated  community  contain?    Does  he  wish  to 
assume  that,  in  addition  to  the  first  or  second  thousand 
of  laborers,  this  community  already  possesses  some  avail- 
able capital  goods  in  the  form  of  buildings,  materials, 

» Pa«e  182  and  the  passage  in  the  text  beginning  at  the  bottom  of  p.  181. 


Ik  ^ 


V  J 


A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY     253 

tools  of  the  value  of  one  hundred  million  dollars,  such  as, 
of  course,  must  have  been  produced  by  previous  labor? 

If  this  be  the  actual  state  of  affairs,  then  we  need  not 
retract  by  one  iota  our  acceptance  of  the  several  items 
in  Clark's  reasoning.    But  then  it  is  also  clear  that  the 
legitimate  conclusion  from  these  several  items  signifies 
nothing  for  the  proposition  which  Clark  derives  from  them. 
The  output  from  this  combmation  of  productive  factors 
is  a  gross  product  arising  from  the  co-operation  of  current 
labor  and  of  capital  goods  made  by  previous  labor.    It  is 
clear  as  noonday  that  this  gross  product  is  not  to  be 
ascribed  to  current  labor  alone.    The  fish  caught  by  a 
fisherman  with  the  aid  of  boat,  tackle,  and  nets,  is  not 
produced  by  the  fisherman  alone.    Something  is  to  be 
ascribed  to  the  co-operating  capital  goods.    But  it  is  not 
less  clear  that,  when  we  separate  the  product  of  past  and 
of  previous  labor,  we  do  not  in  the  least  touch  the  real 
problem  as  to  the  shares  of  labor  and  capital.    That  prob- 
lem begins  to  arise  when  we  inquire  further  as  to  that 
peculiar  element  which  appears  in  the  very  first  partition 
between  the  fisherman  and  the  capital  goods  which  he 
uses.    Here  already  we  have  to  ask  how  much  is  to  be 
ascribed  to  the  labor  of  those  whose  previous  exertions 
brought  into  existence  the  boat,  the  tackle,  and  the  net. 
Obviously,  the  catch  of  fish  is  partly  due  to  their  labor.    It 
is  clear,  moreover,  that  their  claim  arises  from  the  conse- 
quences which  ensue  from  the  presence  or  co-operation 
of  the  capital  goods  which  they  produce.     Finally,  there 
is  the  crucial  question  whether  the  share  in  the  product 
ascribed  approximately  to  the  presence  of  capital  goods 
completely  exhausts   their   claim,    whether    or  no   the 
entire  contribution  which  results  from  the  presence  of  a 
capital  good  is  to  be  regarded  as  the  product  of  the  pre- 
vious labor  which  has  created  that  good. 
This  crucial  problem  Clark's  reasoning  does  not  touch 


A 


254 


QUARTERLY  JOURNAL  OF  ECONOMICS 


or  even  approach.  If  he  regards  the  endowment  of  capital 
at  the  disposal  of  the  first  or  second  thousand  of  laborers 
as  consisting  of  completed  capital  goods,  produced  by  pre- 
vious labor,  then  the  total  output  consists  in  part  of  the 
fruit  of  this  earlier  capital-making  labor.  In  order  to 
state  the  case  in  such  way  as  to  make  it  plain  that  the 
whole  product  was  not  ascribable  to  labor,  the  output 
should  not  have  been  compared  with  a  part  only  of  the 
labor  concerned.  Professor  Clark  should  have  inquired 
as  to  the  whole  of  the  labor,  including  that  which  made 
the  capital.  After  ascertaining  what  was  ascribable  to 
this  previous  labor,  he  should  have  inquired  whether  the 
rest  of  the  output  coincided  with  the  product  of  current 
labor.  This  important  question  is  passed  by,  and  the 
conclusion  is  a  simple  non  sequitur.  It  is  inadmissible  to 
conduct  the  suit  against  current  labor  only,  whose  claims 
to  the  total  output  can  be  refuted  with  ease,  and  then  to 
deliver  judgment  against  previous  labor  also,  whose  weighty 
claims  have  not  been  considered  at  all.^ 

There  is,  however,  another  way  of  interpreting  Professor 
Clark.  Perhaps  he  holds  to  his  distinction  between  true 
capital  and  capital  goods,  and  would  say  that  his  assump- 
tion of  "a  hundred  million  dollars'  worth  of  capital"  does 
not  mean  the  existence  of  capital  goods  having  this  value. 
Then  I  must  ask.  What  in  the  world  does  it  mean?  Are 
we  to  assume  that  the  thousand  laborers  are  on  hand, 
and  not  to  assume  that  there  are  also  materials  and  tools, 
already  produced?    What,  then,  is  the  tangible  meaning 

*  I  will  not  accuse  Professor  Clark  of  having  entirely  overlooked  the  necessity 
of  distinguishing  what  part  of  the  gross  product  is  due  to  previous  labor.  But  he 
makes  it  quite  impossible  for  us  to  judge  whether  he  has  considered  it  at  all,  still 
more  whether  he  has  considered  it  sufficiently.  Taking  his  language  literally,  one 
does  not  see  that  he  has  paid  any  attention  whatever  to  this  point.  If  he  has 
really  had  it  in  mind,  it  has  been  in  a  manner  not  subject  to  our  control.  It  would 
be  superfluous  to  criticise  in  advance  every  conceivable  interpretation  of  Professor 
Clark's  meaning,  when  it  is  so  inadequately  expressed.  I  content  myself  with 
pointing  out  that  the  steps  in  his  reasoning  which  he  has  developed  with  clearness 
permit  no  legitimate  conclusion  in  favor  of  the  proposition  which  he  has  laid  down. 
Compare  what  follows  in  the  text,  and  the  note,  p.  256. 


i     '■ 


J 


A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY     255 

of  the  phrase,  "give  to  this  isolated  community  a  hundred 
million  dollars'  worth  of  capital"?  I  will  make  no  guess 
as  to  what  Professor  Clark  may  then  have  meant.  I 
should  find  it  difficult  to  make  a  guess,  and  in  any  case 
believe  it  to  be  useless  to  trouble  the  reader  with  discus- 
sions of  assumptions  and  explanations,  as  to  which  Pro- 
fessor Clark  might  say  in  the  next  number  of  this  Journal 
that  they  were  not  at  all  his  own.^ 

I  content  myself  with  pointing  out  that  a  supply  of 
true  capital,  which  is  not  a  supply  of  available  capital 
goods,  is  pure  necromancy.    I  fear  very  much  that  here 
and  elsewhere,  at  decisive  points,  the  Clarkian  logic  rests 
upon  no  more  stable  foimdation  than  a  quibble  as  to  the 
magical  qualities  of  true  capital.    He  loves  to  sow  with 
capital  goods  and  to  reap  for  true  capital.    Capital,  as  he 
operates  with  it,  has  a  Janus  face.    When  the  question  is, 
what  does  an  endowment  of  capital  produce?  we  have  the 
familiar  features  of  capital  goods,— machines,  tools,  build- 
ings.   Their  presence,  unquestionably,  causes  the  output 
to  be  greater  by  an  amount  which  is  not  to  be  ascribed  to 
the  current  labor  which  uses  these  capital  goods.    But 
when  the  question  arises,  to  whom  is  this  part  of  the  out- 
put, not  the  result  of  current  labor,  to  be  ascribed?  we  are 
no  longer  shown  these  labor-made  capital    goods.    The 
method  of  imputation  is  not  invoked  to  show  how  much 
of  the  total  output  is  due  to  capital  goods,  whether  the 
whole  or  part.    Clark's  diagram  has  no  line  which  indi- 
cates the  product  or  portion  of  product  due  to  capital 
goods,  nor  a  line  which  indicates  the  previous  labor  that 
created  these  capital  goods.    At  this  point  in  his  demon- 
stration the  other  side  of  the  Janus  head  only  is  to  be  seen. 

» It  is  not  to  be  forgotten  that  Professor  Clark  has  said  repeatedly  and  with 
emphasis,  that  his  true  capital  exists  only  so  long  as  it  is  incorporated' in  capital 
goods,  and  has  taken  the  form  of  materials,  tools,  merchandise,  and  the  like.  Sea 
his  book,  pp.  119,  259,  and  compare  my  previous  paper  in  this  Journal  for  No- 
vember, 1906,  pp.  11,  12. 


-( 


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QUARTERLY  JOURNAL  OF  ECONOMICS 


Besides  the  current  labor  of  the  first  or  second  thousand 
workmen,  the  only  thing  that  is  visible  is  an  endowment 
of  "true  capital,"  which  is  not  to  be  confounded  (Heaven 
forbid!)  with  concrete  capital  goods.  Any  share  not 
ascribable  to  current  labor  is  then  ascribed,  once  and  for 
all,  to  true  capital  as  the  only  other  factor  present.  Then 
it  is  supposed  to  follow  that  it  is  ascribable  to  no  kind  of 
labor.  The  previous  labor  which  produced  the  capital 
goods  has  disappeared  with  the  capital  goods,  thus  leav- 
ing no  trace  behind.  ''True  capital,"  which  alone  remains 
in  sight,  suggests  no  question  as  to  previous  labor. 

Thus  Professor  Clark  deceives  himself  and  us  with 
semi-mathematical  reasoning  and  carefully  drawn  dia- 
grams, and  lays  down  a  conclusion  which  he  has  never 
really  proved,  and  whose  basis  he  has  withdrawn  from 
our  scrutmy  through  a  dialectic  ambiguity.  The  assump- 
tions as  to  the  cause  and  size  of  the  output  are  so  stated 
that  they  suppose  the  existence  of  capital  goods,  and 
therefore  imply  previous  labor  that  has  made  these  capital 
goods.  The  assumptions  as  to  the  imputation  of  the  out- 
put are  so  stated  that  capital  goods  and  previous  labor 
are  ruled  out.  In  the  output  there  are  fruits  to  which 
previous  labor  has  clauns,  and  the  examination  of  those 
claims  is  the  central  point  of  the  whole  problem  of  labor 
and  capital.  In  Professor  Clark's  exposition  these  claims 
are  set  aside  under  the  pretext  that,  beside  current  labor, 
there  is  nothing  but  true  capital.* 

Incidentally,  it  may  be  remarked  that  this  fallacy  in 

*I  state  my  criticism  in  somewhat  general  terms,  because  Professor  Clark 
does  not  accurately  specify  what  he  means  by  output.  It  does  not  appear  whether 
that  which  Professor  Qark  puts  before  us  as  output  includes  the  whole  jrield  of 
the  co-operating  capital  goods  or  only  a  part  of  that  yield,  with  possible  deduc- 
tions or  some  sort  of  precise  reckoning.  It  is  certain,  however,  that  the  output 
contains  at  least  some  things  to  which  current  labor  has  no  claim.  The  question 
arises  as  to  what  claim  previous  labor  may  have,  and  that  question  is  left  imtouched 
by  Professor  Clark.  This  logical  error  remains  in  essentials  the  same,  whether  it 
is  committed  with  reference  to  the  whole  of  the  unexamined  portion  or,  as  is  more 
probable,  with  reference  to  only  a  part  of  it. 


J 


*^ 


A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY     257 

Professor  Clark's  reasoning  has  nothing  to  do  with  another 
train  of  reasoning,  which  bears  on  an  entirely  different 
aspect  of  the  question  and  which  Professor  Clark  presents 
satisfactorily.  That  is  the  question  whether,  in  conse- 
quence of  the  law  of  diminishing  returns  on  land,  the  co- 
operation of  labor  with  natural  powers  assumes  some 
degree  of  scarcity  in  the  latter;  in  which  case  the  whole 
product  is  not  to  be  ascribed  to  labor  alone.*  Since  land 
and  natural  agents  are  not  produced  by  labor,  the  crucial 
question  cannot  here  arise  as  to  the  share  of  previous  labor. 
That  question  can  arise  only  with  what  Clark  calls  "arti- 
ficial capital."  Professor  Clark  applies  the  term  "capital" 
to  land  also.  But  this,  of  course,  does  not  justify  him 
in  applying  conclusions  which  are  valid  as  regards  land  to 
other  goods  (instruments  made  by  man)  as  to  which  the 
fundamental  conditions  are  different.  This  fundamental 
difference  seems  to  me  a  strong  ground  for  distinguish- 
ing in  our  terminology  between  land  and  intermediate 
products.* 

III. 

Let  us  turn  now  to  the  second,  positive  part  of  the 
reasoning.  Shall  we  find  here  a  different  and  more  suc- 
cessful analysis  of  the  great  problem? 

Professor  Clark,  in  developing  the  "law  of  interest," 
uses  the  same  diagram  which  he  before  used  as  to  wages, 
only  he  now  gives  his  graphic  s3niibols  the  reverse  mean- 
ing: "Let  the  labor,"  he  says,  "be  the  element  that  is 
imchanged  in  amount,  and  let  capital  be  the  one  that  is 
supplied  in  a  succession  of  increments.  AB  is  now  the 
product  gained  by  using  one  increment  of  capital  in  con- 

1  See  p.  163. 

'My  views  as  to  the  differences  between  natural  agents  and  capital  I  have 
stated  in  my  Capital  and  Interest,  p.  340,  ff.,  English  edition,  and  in  my  Positiv 
Theory  of  Capital,  pp.  95,  364,  flf.,  English  edition. 


258 


QUARTERLY  JOURNAL  OF  ECONOMICS 


nection  with  the  whole  workmg  force.  A'  B'  is  the  addi-^ 
tional  product  that  is  created  by  a  second  increment  of 
capital.  A''  B''  is  the  product  of  the  third  increment,  and 
DC  is  the  amount  produced  by  the  last.  This  amount, 
DC,  fixes  the  rate  of  interest.  No  one  of  the  series  of  units 
of  capital  can  secure  for  its  owner  more  than  the  last  one 
produces.  If  the  owner  of  the  first  increment  asks  more 
than  this  for  the  use  of  it,  the  entrepreneur  will  relinquish 
this  bit  of  capital  and  will  put  the  last  imit  in  its  place. 
What  he  will  lose,  in  the  way  of  product,  is  measured  by 
the  amount  DC,  the  direct  product  of  the  final  increment 
of  capital.  This  expresses  the  effective  product  of  every 
increment,  since  it  is  the  amount  that  would  be  lost  if 
any  one  of  the  series  were  withdrawn."  ^ 

In  this  exposition  the  reader  will  note  a  circumstance 
which  is  not  explicitly  stated,  but  is  none  the  less  clearly 
imphed.  That  product  which  arises  from  an  additional 
increment  of  capital  and  is  ascribable  to  it  is  not  what  is 
elsewhere'  called  the  gross  product,  but  is  only  that 
portion  by  which  the  gross  product  exceeds  what  is  neces- 
sary to  replace  the  capital  used  up.  In  other  words,  it  is 
what  Clark  calls  "net  product."  This  is  clearly  to  be  in- 
ferred from  the  fact  that  in  his  diagram  Clark  regards  as 
identical  amounts  the  product  of  the  last  increment  of 
capital  and  that  which  this  increment  receives  in  the 
way  of  interest, — i.e.,  net  income, — a  conception  which  ap- 
pears in  express  terms  in  many  other  passages.^  The 
remainder  of  what  is  produced  thru  the  co-operation  of 
capital  goods,  such  as  instruments  and  materials,  is  not 
explicitly  accoimted  for,  either  in  the  text  or  in  the  dia- 
gram.*    We    must    infer  that    Professor    Clark  tacitly 

iPage  182. 

a  See  pp.  270,  271.    But  on  p.  347  this  expression  is  used  in  a  different  sense. 

3  Page  202,  for  example. 

*  That  Professor  Clark  disregards  separate  entrepreneurs'  profits  is  doubtless 
due  to  his  aasumption  that,  in  a  static  state,  "normal"  (cost)  prices  are  net  profit 
prices. 


f 


A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY     259 

credits  this  remainder  to  labor;  for  the  whole  product  is 
apportioned  once  for  all  between  labor  and  capital.  * 

An  attentive  consideration  will  show  that  this  mode  of 
treating  the  subject  still  throws  not  a  particle  of  light  on 
the  real  problem  of  interest.  To  solve  that  problem,  it 
must  be  shown  why  there  is  a  net  product  ascribable  to 
capital.  Net  product  is,  so  to  speak,  a  distillate.  To 
explain  a  distillate,  the  process  of  distillation  must  be  ex- 
plained. But  Professor  Clark  gives  his  explanation  by 
assuming  the  existence  of  the  final  distillate.  On  the  one 
hand,  he  assumes  the  appearance  of  successive  increments 
of  capital  goods.  By  some  process  of  distillation,  which 
is  not  explained  to  us,  these  are  already  free  from  all  ad- 
mixture of  the  previous  labor  which  unquestionably  is 
incorporated  in  real  capital  goods.  On  the  other  hand, 
he  assumes  the  appearance  of  successive  jdelds,  which 
again  are  clear  net  income,  completely  free  from  that  wear 
and  tear  which  is  an  inseparable  consequence  of  the  use 
of  real  capital  goods.  He  might  be  expected  to  use  the 
method  of  imputation  in  order  to  explain  the  existence  of 
any  net  income,  i.e.  any  excess  of  the  total  product  arising 
from  the  co-operation  of  productive  instruments  over  and 
above  the  inevitable  wear  and  tear.  In  fact,  he  entirely 
conceals  from  view  his  mode  of  reasoning.  What  he 
presents  is  the  pure  assumption  that  every  increment  of 
distilled  true  capital  somehow  brings  an  increment  of  dis- 
tilled net  income,  a  product  over  and  above  the  wear  and 
tear.  This  assumption  being  made,  it  only  remains  to 
consider  which  of  several  possible  net  incomes  is  to  be 
regarded  as  the  last,  and  so  ascribable  to  any  one  increment 
of  true  capital.  Hence,  in  the  diagram  the  line  A'  B' 
determines  interest  if  there  are  only  two  units  of  capital, 

^  This  appears  tmmistakably  in  the  diagram  on  p.  201,  and  in  such  expresnons 
as  this  on  p.  200:  "AEDC  will  be  the  total  amount  of  interest,  and  EBC  will  be  a 
surplus;  but  it  will  be  a  surplus  that  is  causally  attributable  to  labor,  and  to  labor 
only." 


mm 


260 


QUARTERLY  JOURNAL  OF  ECONOMICS 


the  line  CE  if  there  are  six  units  of  capital.  The  crucial 
question  is  whether  there  is  any  net  income  at  all,  any- 
thing in  the  nature  of  a  marginal  addition  to  product, 
ascribable  to  capital;  and  that  question  is  already  disposed 
of  in  the  assumption.  In  the  same  manner  one  might 
infer  from  the  circimistance  that  white  balls  are  drawn 
out  of  an  urn  the  conclusion  that  none  other  than  white 
balls  had  been  put  into  it. 

The  fact  is  that  Professor  Clark  assumes,  at  the  outset, 
a  net  yield  of  capital,  and  so  fails  to  consider  the  question 
which  is  decisive  as  to  the  origin  of  capital.     Suppose  a 
capital  of  $1,000,000,  consisting  of  a  factory  and  raw  ma- 
terials, and  suppose  a  staff  of  workmen  employed  in  con- 
nection with  it.    Unquestionably,  this  capital  has  to  do 
not  only  with  that  portion  of  product  (say  $40,000)  which 
the  owner  gets  in  the  way  of  interest,  but  with  the  further 
product  of  $1,000,000  which  sooner  or  later  goes  to  the 
owner  to  compensate  him  for  the  consumption  of  raw 
materials  and    the  eventual  wearing  out  of  the  plant. 
Suppose  this  capital  suddenly  destroyed.    It  is  certain 
that  there  would  be  a  loss,  not  only  of  the  annual  interest 
of  $40,000,  but  of  the  further  simi  of  $1,000,000,  which 
otherwise  would  have  been  produced  and  would  offset  the 
wearing  out  of  the  capital  goods.    It  follows  that,  on  the 
very  principles  of  imputation  set  up  by  Professor  Clark, 
the  whole  gross  product  is  to  be  ascribed  to  the  capital 
goods.    He  himseff  repeatedly  says  that  normally  every 
instrument  '^ creates"  and  "earns''  a  product  large  enough 
to  replace  itself  and  in  addition  to  yield  a  dividend  to  the 
owner.    Then  the  whole  gross  product  which  is  "created" 
or  "harvested"  by  such  instruments  must  be  ascribed  to 
them.    The  second  question  next  arises,  why  this  gross 
yield  should  contain  anything  over  and  above  the  value 
of  the  capital  goods  consumed  or  destroyed.    Let  the 
process  of  imputation  be  carried  further,  and  applied  to 


I 


f 


.r 


< 


A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY     261 

each  and  every  fundamental  factor;  and  consider  whether  in 
the  end  there  will  be  a  net  product  to  be  imputed  specifi- 
cally to  capital.  It  need  not  be  said  that  this  second  ques- 
tion presents  the  real  problem  of  interest,  the  really  difficult 
and  disputable  problem.  This  problem  is,  so  to  speak, 
the  defile  thru  which  every  one  must  pass  who  under- 
takes to  follow  interest  to  its  source. 

On  the  other  hand,  we  must  ask,  how  can  there  be  a  gap 
between  the  value  of  that  capital  itself  and  the  value 
of  the  product  imputed  to  it,  if  the  gross  jdeld  of  capital 
goods  is  ascribed  to  them  as  their  product?  As  we  have 
seen,  Professor  Clark  intimates  that  the  "effective  value" 
of  a  unit  of  labor  is  that  which  is  to  be  ascribed  to  it  as 
product.*  The  same  principle  must  be  followed  for  the 
other  factors  of  production,  capital  goods  included.^ 
Suppose,  now,  there  is  ascribed  to  a  group  of  capital  goods, 
which  "creates"  a  specific  product  and  is  worn  out  in  the 
course  of  this  creation,  precisely  as  much  in  value  as  the 
created  product  amounts  to  in  value.  In  that  case 
would  not  the  replacement  of  the  capital,  its  wear  and 
tear,  exhaust  the  imputed  gross  product,  and  leave  no  net 
product  and  no  interest?  This  is  the  difficulty  which 
productivity  theories  must  face,  and  which  I  will  not  ex- 
plain more  in  detail,  since  I  have  already  done  so  else- 
where. Essentially,  it  is  the  same  point  to  which  Profes- 
sor Fetter  has  lately  called  attention  in  his  clear  and  acute 
exposition  of  the  same  problem.^ 

On  the  other  hand,  a  question  may  be  asked  which 

1  See  pp.  270,  271,  272. 

'  Professor  Seager  expressly  says  in  his  Introduction  to  Economics  (p.  95),  "The 
value  of  each  group  of  factors  is  derived  from  that  of  the  consumable  goods  which 
it  is  helping  to  produce." 

'  Fetter,  Principles  of  Economics,  p.  148.  Fetter  notes  that  future  jdelds  enter 
into  the  value  of  productive  goods  for  a  less  amount  than  they  will  have  as  "actual" 
yields,  and  says  that  this  is  the  "crucial  point"  in  the  theory  of  interest.  He 
holds  that  the  productivity  theories  "beg  the  question  involved."  Compare  my 
Capital  and  Interest,  Book  II. 


jm 


262 


QUARTERLY  JOURNAL  OF  ECONOMICS 


leads  to  the  central  problem  of  interest  from  another 
direction.  If  a  given  product  is  made  by  a  group  of  in- 
struments and  materials,  this  group  is  not  an  original  fact 
or  of  production,  but  has  itself  been  brought  into  existence 
by  labor.  On  the  principles  of  imputation,  must  not 
everything  which  arises  from  a  capital  good  be  imputed 
to  labor,  as  ''caused"  by  it?  This  is  the  question  which 
the  socialists  have  asked  of  those  maintaming  a  produc- 
tivity theory.'  That  same  question  I  have  myself  ad- 
dressed, though  not  in  the  precise  form  in  which  the 
socialists  put  it,  to  those  maintaining  sundry  current 
theories  of  interest.* 

Whoever  wishes  to  solve  the  problem  of  interest  must 
give  a  distinct  answer  to  these  questions,  and,  first  of  all, 
he  must  formulate  them  clearly.  Professor  Clark  simply 
evades  them.  His  mode  of  stating  and  discussmg  the 
problem  simply  avoids  the  critical  defile.  His  failure  to 
enter  it  is  due  to  that  deceptive  phantasm  of  his,  per- 
manent true  capital,  which  is  supposed  to  be  distinguish- 
able from  capital  goods. 

In  the  course  of  one  of  those  rhetorical  passages  to  which 
Professor  Clark  is  wont  to  turn  with  characteristic  and  in 
this  case  with  suspicious  serenity,  he  remarks  that  the 
problem  of  interest  has  to  do  only  with  true  capital,  and 
not  with  capital  goods.  Interest  is  said  to  be  a  percentage, 
a  fraction  of  itself,  yielded  by  capital.  Now  a  building  oi 
a  machine  does  not  literally  yield  each  year  a  twentieth 
(say)  of  itself.'  This  is  supposed  to  be  sufficient  ground 
for  the  conclusion  that  interest  is  yielded,  not  by  capital 

»  The  original  factors  of  production  I  hold  to  be,  not  labor  alone,  but  labor 
and  natural  forces.  See  my  Potitive  Thwrry,  English  edition,  p.  96.  But  for  the 
purposes  of  the  present  discussion  we  may  disregard  natural  forces  if  we  assume 
that  capital  goods  are  created  by  labor  operating  twith  free  natural  forces  on  the 
margin.    See  my  Capital  and  Interest,  p.  340. 

»  Especially  the  productivity  and  abstinence  theories.  Compare  my  Capital 
•nd  IfUerut,  p.  278;  also  Recent  Literature  on  Intereet,  p.  27. 

«  dark,  p.  123. 


f 


.^ 


y 


. 


A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY     263 

goods,  but  only  by  true  capital,  by  the  permanent  fund 
of  value!  Capital  goods  )rield  rent,  but  never  "interest." 
To  be  sure,  interest  and  rent  are  essentially  the  same  in- 
come, only  described  in  different  ways,  expressed  in  dif- 
ferent forms.  Interest,  however,  is  the  fundamental 
phenomenon:  "fundamentally  interest  governs  rent."  * 

It  is  true  that  Professor  Clark  finds  himself  compelled  to 
admit  it  as  inevitable  that  "both  capital  and  capital 
goods  should  be  subjects  of  economic  study,"  since  both 
give  rise  to  problems  in  need  of  solution.  Again,  he  says 
that  "studies  of  capital  proper  should  be  confirmed  at 
every  point  by  parallel  studies  of  capital  goods."  *  To 
be  consistent,  he  should  then  have  explained  the  problem 
of  rent  in  connection  with  capital  goods.  But  he  does 
not  do  so.  When  he  speaks  of  the  facts  which  connect 
themselves  with  the  net  product  from  capital  goods, — when 
he  discusses  gross  product  and  net  product,  gross  earnings 
and  net  earnings,  gross  rent  and  net  rent,  wear  and  tear, 
and  sinking  funds,' — he  simply  assumes  the  existence  of 
such  a  thing  as  net  rent.  He  does  not  endeavor  to  ex- 
plain why  there  should  be  anything  left  after  wear  and 
tear  had  been  deducted  from  gross  rent,  presumably  be- 
cause he  conceives  interest  to  be  the  fundamental  phe- 
nomenon, and  the  explanation  of  this  belongs  to  the  theory 
of  true  capital. 

When  it  comes  to  interest,  however,  which  his  rhetorical 
artifice  has  transferred  to  the  theory  of  true  capital,  the 
essential  point  of  the  problem  is  passed  by.  The  pretext 
for  this  is  found  in  the  interesting  attributes  which  Pro- 
fessor Clark  has  imagined  for  permanent  true  capital. 
Whereas  capital  goods  are  necessarily  worn  out  and  de- 
stroyed, permanent  abiding  capital  may  not  be  normally 
worn  out  or  destroyed.*    It  operates  without  wear  and 


1  See  Clark,  pp.  123-25. 
3/6id..  pp.  122,  334. 


>/l>Mi.,pp.270.  335. 


^  Ibid.,  p.  117. 


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264  QUARTERLY  JOURNAL  OF  ECONOMICS 

tear,  without  deduction  from  its  gross  yield.  Hence  no 
probkni  can  arise  of  a  difference  between  gross  and  net 
product,  nor  any  need  of  elucidating  the  relation  between 
the  two.  Whatever  permanent  capital  creates  is  from, 
the  outset  endowed  with  the  property  of  being  a  completed 
net  product.  In  this  fashion  the  first  of  the  troublesome 
questions  which  present  themselves  at  the  defile  of  the 
interest  problem,  and  which  has  caused  others  so  much 
concern,  is  quietly  put  aside.' 

But  the  second  question  also  is  evaded  by  this  slippery 
creation,  true  capital.    He  who  attacks  the  problem  with 
reference  to  capital  goods,  and  asks,  "how  much  of  the 
joint  product  which  the  fisherman  has  caught  with  his  ca- 
noe and  fishing  tackle  is  due  to  the  man  and  how  much  is 
due  to  his  implements?"  must  be  prepared  to  face  the 
next  question,  "is  the  canoe  a  gift  of  heaven,  or  is  it  not- 
also  made  by  the  labor  of  man,-of  the  fisherman  himself 
or  of  some  other  man?"    So  put,  the  question  resolves 
itself  into  this:   "How  much  of  the  joint  product  is  to  be. 
ascribed  to  the  labor  of  the  fisherman,  how  much  to  the 
labor  of  him  who  made  the  canoe,  and  is  all  of  it  due  to 
labor  of  some  sort?"    "True  capital"  dodges  this  ques- 
tion    True  capital  is  something  different  from  concrete 
capital  goods.    That  the  canoe  is  made  by  labor  cannot 
possibly  be  denied.    But  the  true  capital  of  the  fisherman, 
even  though  it  consists  of  these  capital  goods  made  by 
labor,  is  yet  something  different.    No  hammer  or  saw  has 
worked  at  it.    It  has  been  produced  by  no  laborer,  and  so 
no  question  can  arise  as  to  what  is  due  to  this  laborer  or 

is  to  be  imputed  to  him. 

Havmg  thus  provided  that  whatever  is  to  be  imputed  to 
capital  must  be,  ipso  facto,  a  net  product,  and  not  to  be 

■  In  a.,  direct  imputation  of  net  product.  I  tod  'f' ^'"^ 'f'^^'^X 
tween  Profe»or  CUrk's  theory  and  Professor  W.eser  8  to  wh  ch  '  ^""^^ 
JSS^eT  See  Wieser's  Natural  Value.  English  ed.t.on,  pp.  124-13.1.  Compar. 
■Igo  my  Rtcmt  Litrrature  m  Interetl,  p.  98.! 


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A  RELAPSE  TO  THEFRODUCTIVITY  THEORY     265 

imputed  to  any  labor,  Clark's  only  remaining  problem 
is  to  show  that  something  is  to  be  ascribed  to  capital 
in  production.    Here,  again,  he  resorts  to  the  quahties 
with  which  he  has  endowed  his  true  capital.    That  same 
double-faced  Janus  aspect  is  shown  to  us.    Fu«t,  as  we 
have  seen,'  the  capital  goods  are  put  before  us,-tools, 
machines,  materials,  automatic  implements,  and  electnc 
motors.    This  makes  it  indubitable  that  a  real  product 
arises  from  their  use.    A  moment  afterwards  the  tangible 
qualities  of  these  capital  goods  disappear,  and  the  hob- 
goblin of  true  capital  presents  himself,  and  claims  as  his 
share-he  being  now  the  only  claimant  in  addition   to 
current  labor-whatever  part  of   the   output  cannot  be 
due  to  this  current  labor. 

Such  are  the  dangerous  services  rendered  to  Professor 
Clark  by  his  favorite  creation.  I  caU  them  dangerous, 
because  they  give  him  a  dialectic  pretext  for  a  failure 
even  to  state  the  questions  whose  consideration  is  essen- 
tial for  the  problem  in  hand.  He  satisfies  Wmself  with  a 
mode  of  treatment  which  affects  to  be  consistent,  but  which 
at  the  decisive  pomt,  is  not  held  together  by  connected 
reasonii^  or  facts,  but  by  an  ambiguous  phrase.  Ihe 
lack  of  consecutiveness  in  his  logic  is  simply  covered  up 
by  this  unhappy  device. 

IV. 

There  are  certain  other  passages,  however,  in  Profes- 
sor Clark's  book  which  may  be  designed  to  supplement 
his  theory  of  interest  and  which  must  also  be  considered. 
These  are  the  passages  in  which  Professor  Clark  ascribes 
to  true  capital,  as  distinct  from  capital  goods,  the  func- 
tion of  removing  time  intervals,  of  "synchronizing  labor 
and  its  fruits.    In  my  judgment,  these  are  the  very  pas- 

» See  above,  p.  256. 


266 


QUARTERLY  JOURNAL  OF  ECONOMICS 


sages  in  which  Professor  Clark  wanders  most  dangerously 
far  from  the  truth. 

Professor  Clark  sets  forth  that,  in  a  society  which  has 
not  yet  supplied  true  capital,  "labor  and  time  are  the  only 
absolute  requisites  of  production."*  Indeed,  labor  is 
the  only  requisite.'  But,  when  those  advantages  are 
secured  which  arise  from  roundabout  methods  of  pro- 
duction, labor  must  first  be  given  to  making  tools  or  capi- 
tal goods.  The  laborer  must,  then,  wait  a  certain  time 
for  the  enjoyable  products  which  are  made  with  the  aid 
of  these  capital  goods.  "Capital  goods  imply  waiting 
for  the  fruits  of  labor."* 

But  the  situation  is  different  in  a  society  which  has  true 
capital.  Professor  Clark  designates  the  several  phases  of 
production  by  the  letters  A,  A',  A'',  A''',  A!"*  indicating, 
for  example,  sheep  in  a  pastm-e,  wool,  cloth,  completed 
clothing.  The  reader  will  recall  the  reasoning  of  these 
passages.  When  once  the  series  of  successive  commodities 
is  made  up,  the  completed  commodities  satisfy  the  wants  of 
society,  but  others  in  the  next  preceding  stage  are  steadily 
advancing  toward  completion,  and  the  whole  series  is 
constantly  kept  intact.* 

Now  the  outcome  of  this,  in  Professor  Clark's  view,  is 
that  in  a  society  thus  organized  and  equipped  no  one  has 
to  wait  for  the  results  of  production.  The  laborer  who 
to-day  is  working  at  the  raw  material,  say  wool,  none  the 
less  receives  on  the  same  day  the  completed  product, — a 
coat.  "On  the  ranches  of  Montana  cattle  are  breeding, 
among  the  forests  of  Pennsylvania  hides  are  tanning,  in 
the  mills  of  Brockton  shoes  are  finishing;  and,  if  the  series 
of  goods  in  all  stages  of  advancement  is  only  kept  intact, 
the  cow-boy  may  have  to-day  the  shoes  that  he  virtually 

*Pa8»308,ff. 

■  **The  thing  that  is  ultimately  essential  for  production  is  labor"  (p.  310.) 

*  FftSe  311.  *  Pages  315-318  and  poMtm. 


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A  RELAPSE  TO    THE  PRODUCTIVITY  THEORY     267 

creates  by  his  efforts."  All  this  is  achieved  by  true  capi- 
tal. "It  is  the  means  of  avoiding  all  waiting.  It  is  the 
remover  of  time  intervals — the  absolute  synchronieer  of 
labor  and  its  fruits."  Professor  Clark  never  tires  of  re- 
peating this  thought.  "True  capital  keeps  the  men  from 
waiting"  (p.  318).  It  brings  "the  instantaneous  appear- 
ance of  the  final  fruits  of  every  bit  of  labor  that  is  put 
forth"  (p.  311).  "Time  intervals  do  not  figure."  "Out  of 
every  day's  labor  will  come  in  their  completed  shapes  the 
consumer's  goods.  .  .  .  The  work  and  the  outcoming  of  the 
goods  are  sjmchronous.  This  synchronization — this  bring- 
ing together  in  time  of  work  of  every  kind,  and  the  com- 
plete ripening  of  its  virtual  product — is  the  function  of 
what  we  have  termed  capital,  in  distinction  from  capital 
goods."  "If  industry  were  conducted  on  such  a  plan  that 
the  work  that  to-day  begins  to  fashion  a  bit  of  raw  material 
had  no  influence  in  causing  a  finished  article  at  once  to 
emerge  at  the  other  end  of  the  line  of  operations,  then 

also  we  should  have  to  wait.    As  it  is,  we  wait  not  at  all 

Our  plan  of  working  enables  the  labor  that  is  done  on  a 
raw  article  to  cause  a  finished  one  to  come  into  our  posses- 
sion." 

If  I  imderstand  everything  which  is  here  implied,  tho 
not  expressly  stated,  this  remarkable  theory  contains  an 
important  attempt  to  close  a  gap  in  the  theory  of  interest. 
If  it  be  soimd,  it  explains  and  justifies  Professor  Clark's 
failure  even  to  state  those  questions  which  others  of  us 
find  crucial  for  the  problem.  As  I  have  just  said,  Professor 
Clark  does  not  touch  the  question  why  the  product  im- 
putable to  a  given  capital  good  is  not  to  be  ascribed  to  the 
previous  labor  which  created  that  good.  If  so  imputable, 
the  whole  product  of  capital  would  be  identical  with  its 
wear  and  tear,  and  no  net  product  of  capital  would  remain. 
But  according  to  the  reasoning  now  under  consideration 
no  question  of  wear  and  tear  can  arise,  nor  any  need  of 


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QUARTERLY  JOURNAL  OF   ECONOMICS 

considering  the  i)revious   labor.     The  completed   good, 

A.""  (a  coat),  is  declared  by  Clark  to  be  the  product  of  the 

labor  of  to-day.    It  is  in  no  sense  the  product  of  those 

laborers  who  fashioned,  months  or  years  ago,  the  raw 

material  A  or  of  their  successors  who  carried  it   thru 

the  various  phases  of  production.     It  is  the  product  of  that 

laborer  who  to-day  is  making  the  new  material  A  and  of 

those  other  laborers  who  are  to-day  working  at  the  various 

phajses  A',  A",  A"'.    If  it  be  scientific  truth  that   the 

completed  product  A""— the  coat—is  the  fruit  of  labor 

exerted  to-day,  then  no  question  of  wear  and  tear  can 

arise  in  connection  with  cost  of  production,  no  question  as 

to  the  relation  of  product  to  previous  labor,  nor  any  of  those 

problems  which  others  have  thought  difficult  in  the  theory 

of  interest/ 

//  it  he  scientific  truth!    But  it  is  obviously  not  truth. 
Is  the  coat  which  the  tailor  delivers  to  me  to-day  fashioned 
with  the  co-operation  of  a  shepherd  who  is  to-day  driving 
sheep  to  pasture,  of  a  spinner  who  to-day  is  spinning  yarn, 
of  a  weaver  who  to-day  is  weaving  cloth  on  his  loom? 
The  undeniable  fact  is  that  my  coat  has  been  fashioned 
with  the  co-operation  of  the  shepherd  of  a  past  period. 
He  alone  supplies  the  wool  for  my  coat;  so  of  the  spinner, 
the  weaver,  and  the  like.    Society  does  not  enjoy,  in  the 
shape  of  completed  coats,  the  product  of  the  laborer  who 
is  now  tending  sheep.    Society  must  wait  as  many  days, 
months,  or  years  as  are  inevitable  in  the  processes  of  pro- 
duction which  transform  the  raw  material,  wool,  into  the 
completed  coat. 

Professor  Clark  could  not  completely  overlook  that  his 
proposition  is  not  in  accord  with  obvious  facts.    He  re- 

» I  suspect  this  mode  of  presenting  the  problem  explains  Professor  Qark's 
procedure  when  he  endows  with  a  capital  of  100  millions  his  1,000  or  2,000  laborers, 
(See  above,  p.  251.)  It  will  be  remembered  that  Professor  Clark  speaks  as  if  these 
1,000  or  2,000  laborers  alone  took  part  in  production,  and  as  if  there  were  no  pre- 
vious labor  connected  with  the  100  millions  of  capital. 


•  • 


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A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY     269 

sorts  to  a  distinction   between  what  is  ''literally"  and 
''virtually"   true.     This  turn  of   phrase    appears  time 
and  again.^    Not  "literally,"  but  "virtually,"  to-day's 
completed  goods  are  to  be  regarded  as  the  product  of 
to-day's    labor   carried  on  in  its  various  phases.     The 
identity  of  the  particular  pieces  is  supposed  to  be  imma- 
terial, provided  they  are  of  the  same  sort.    "The  identity 
of  the  tree  that  we  burn  is  of  no  consequence.  ...  It  is 
in  practice,  inmiaterial  to  us  whether  we  consume  one  thing 
or   another   that   is  exactly  like  it."  ^    "Surrender  of 
identity"  is  the  key  by  which  labor  exerted  to-day  brings 
enjoyable  results  on  this  very  day.    And  so  the  planting 
of  the  saphng  is  supposed  to  yield  fire-wood  to-day.    Else- 
where Professor  Clark    illustrates  this  proposition  by 
referring  to  a  reservoir  into  which  the  water  flows  at  one 
end,  and  turns  at  the  other  end  a  mill  wheel;  and  he  tells 
us  to  "forget  all  about  the  identity."  ' 

I  would  point  out,  in  the  first  place,  that  Professor 
Clark  himself  explains  that  we  must  here  sacrifice  a  frac- 
tion of  complete  reality,— a  fraction  which,  to  be  sure,  he 
regards  as  insignificant.  The  situation  is  not  exactly 
as  Professor  Clark  states  it.  It  is  so  only  to  all  intents  and 
purposes.  In  other  words,  the  doctrine  rests  by  his  own 
confession  on  a  fiction,  it  lacks  something  of  literal  truth; 
namely,  as  to  the  identity  of  the  things  just  begun  and  the 
things  completed.  We  shall  see  presently  that  more  than 
this  is  lacking.  Oddly  enough.  Professor  Clark  believes 
he  can  get  at  the  truth  more  accurately  by  departing  from 
it  than  by  keeping  to  it  literally.  It  is  not  capital  goods, 
involving  periods  of  production  and  waiting,  that  lead  to 
the  right  understanding  of  capital  and  interest,  but  true 
capital  that  does  this,  with  its  power  of  eliminating  periods 

» Only  on  very  rare  occasions  does  Professor  dark  expressly  say  that  his  "vir- 
tually" holds  good  only  "in  a  figurative  sense." 


*  Page  314. 


3  Page.  315 ;  compare  p.  132. 


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I 


of  production  and  sjmchronizing  labor  and  its  fruits.  The 
edifice  of  truth,  he  thinks,  must  rest  on  a  basis  of  fiction. 

I,  for  my  part,  believe  that  truth  can  never  be  built  up  on 
such  a  basis.  Science  should  seek  to  understand  and  set 
forth  what  really  is.  How  can  one  expect  to  get  an  accu- 
rate statement  of  reality  if  one  begins  by  retouching  reality, 
by  erasing  some  traits  which  in  fact  are  present  and  putting 
in  others  which  in  fact  are  absent?  Even  if  a  given  cir- 
cumstance seem  not  material,  science  dare  not  say  of  a 
fictitious  assiunption,  this  is  fact. 

But  even  the  slightest  departure  from  fact  is  never  quite 
immaterial.  Tho  no  difference  appears  in  the  first  stages, 
one  will  appear  in  the  second  or  third  or  tenth.  In  the 
present  case  we  need  not  go  far.  The  difference  appears 
on  the  very  instant  of  submitting  the  Clarkian  doctrine 
to  a  practical  test.  Suppose  there  is  a  strike  among  the 
laborers  at  that  stage  where  the  raw  material  A  is  produced. 
If  it  were  scientific  truth — Hterally  or  even  virtually — 
that  the  output  of  finished  goods  A'"  is  due  to  the  con- 
temporaneotis  labor  at  the  stages  A',  A'',  A'",  then  the 
stoppage  of  work  at  A  would  at  once  affect  the  output  at 
A'".  In  fact,  it  would  obviously  do  nothing  of  the  kind. 
The  stoppage  would  affect  the  output  of  finished  goods 
only  at  a  later  period,  depending  upon  the  length  of  the 
whole  period  of  production.  * 

But  I  surmise  at  once  what  reply  would  be  made. 
Strikes  are  interruptions  of  existing  conditions.  In  such 
"dynamic"  cases  Professor  Clark  expressly  admits  that 
things  are  otherwise.  In  dynamic  cases  we  have  to  do 
with  capital  goods,  with  periods  of  production  and  waiting. 

*  This  differenee  appears  drastically  with  regard  to  another  iUustration  used  by 
Clark,  that  of  a  forest  with  a  twenty-year  period  of  growth.  It  is  clear  as  noonday 
that  a  cessation  of  planting  would  not  lessen  the  timber-cut  of  the  same  year, 
but  would  only  affect  the  numb^  of  trees  available  twenty  years  later.  Professor 
Fetter  remarks  in  his  Principles  (p.  229),  distinctly  in  contradiction  to  Professor 
Qark,  "Wage  pa3anent  is  a  form  of  credit  to  the  laborer  whose  labor  htu  not  ytt 
froduetd  the  dietant  gratification." 


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A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY     271 

The  proposition  as  to  the  sjmchronizing  effect  of  true 
capital  holds  good  only  in  static  conditions,  where,  by 
«upposition,  disturbing  causes  do  not  appear. 

Everyone  must  feel  that  something  is  wrong  in  this  rea- 
soning. It  is  only  needful  to  make  clear  just  wherein  it 
fails.  It  fails  simply  because  there  are  never  two  different 
truths,  but  always  one  truth.  What  is  true  must  be  true 
dynamically  as  well  as  statically.  On  this  point  I  may 
cite  with  satisfaction  Professor  Clark  himself.  The  rela- 
tion between  static  and  dynamic  theory  is  set  forth  by  him 
in  admirable  passages,  which  I  reckon  among  the  many 
merits  of  his  work.  He  defends  the  scientific  value  of  the 
static  hypotheses  and  of  static  results.  It  is  true  that  the 
static  state  is  imaginary.  All  concrete  societies  are  dyna- 
mic. "Yet  this  does  not  invahdate  the  conclusions  of  a 
static  theory;  for  static  laws  are,  nevertheless,  real  laws." 
The  forces  which  operate  in  a  dynarikc^state  "still  operate  in 
the  changing  world  of  reahty."  "We  study  them  separately 
in  order  that  we  may  understand  one  part  of  what  goes  on 
in  dynamic  society."  The  difference  is  simply  that  in  the 
latter  still  other  forces  appear.  The  static  hypothesis 
differs  from  reality  merely  in  that  these  other  forces  are 
provisionally  disregarded.  So  far  as  the  static  forces 
continue  to  work  in  the  dynamic  world,  static  laws  hold 
good.  "Not  one  jot  nor  one  tittle  shall  fall  from  the  law 
of  natural  values,  or  from  that  of  natural  rates  of  wages, 
interest,  and  profits."  "One  can  hardly  assert  too  em- 
phatically the  dominance  of  the  static  forces  in  real  and 
dynamic  societies."  ^ 

I  accede  to  all  this,  but  it  leaves  no  place  for  any  double 
truth.  A  static  truth  cannot  fail  under  dynamic  condi- 
tions or  vice  versa.  Not  only  this,  but  Professor  Clark's 
own  mode  of  procedure  illustrates  the  singleness  of  truth. 
Throughout  his  exposition  of  a  static  theory  he  uses  the 

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dynamic  experiment  as  a  means  of  discovering,  proving, 
and  verifying  his  static  laws.    His  whole  system  rests  on 
the  principle  of  final  utility  and  final  productivity,  and  on 
the  difference  between  absolute  productivity  and  final  or 
specific  productivity.    How,  for  example,  does  he  prove 
his  thesis  that  only  the  product  of  a  final  unit  of  labor  is 
ascribable  to  the  workman?    He  can  do  so  only  by  an 
experimental  test,  by  introducing  a  dynamic  change  in  the 
static  conditions.    He  inquires  what  would  happen  if 
one  laborer  were  taken  away  or  if  another  laborer  were 
added.    "What  we  may  call,"  he  says,  "the  absolute 
productivity  of  a  particular  man  is  measured  by  the  im- 
portance of  the  particular  work  that  he  is  doing.    Let  the 
man  desert  his  place,  leaving  undone  the  work  that  he  has 
heretofore  done,  and  the  loss  that  the  establishment  will 
thereby  sustain  measures  the  man's  absolute  productivity. 
What  we  have  called  a  man's  effective  productivity  is, 
then,  measured  by  the  loss  that  his  employer  suffers  when 
the  man  departs,  and  when  the  employer  rearranges  his 
force  so  that  the  more  necessary  kinds  of  work  are  still  done. 
The  employer  will  put  B  into  A's  place,  C  into  B's  place, 
etc.;  and  the  only  work  that  goes  undone  is  of  the  kind 
that  is  least  necessary."    This  imaginary  djmamic  ex- 
periment he  believes  to  prove,  with  justice,  that  even  in 
the  static  state  imputed  product  and  remuneration  are 
determined  by  effective  productivity,  and  that  the  test  of 
imputation  is  not  to  be  found  in  absolute  productivity. 
Professor  Clark  is  fully  conscious  that  he  appUes  and  must 
apply  dynamic  changes  as  means  for  ascertaining  static 
truth.    So  much  he  tells  his  readers  repeatedly  (thus  on 
pp.  178,  275,  371). 

To  all  this,  however,  he  shuts  his  eyes  as  soon  as  that 
favorite  creation  of  his,  true  capital,  appears  on  the  scene. 
In  general,  he  handles  his  principle  of  imputation  by  apply- 
ing the  test  of  loss  or  gain  in  output,  according  as  a  given 


r 


.  IJ 


> 


i: 


A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY     273 

factor  is  present  or  absent.  But  here  he  imputes  com- 
pleted commodities  A'"  not  to  earlier  labor,  but  to  con- 
temporaneous labor,  altho  it  is  obvious  that  the  presence 
or  absence  of  laborers  at  stage  A  would  affect  not  the  pres- 
ent output  at  A'",  but  only  a  future  output  at  A'" . 

With  this  confusion  in  regard  to  the  time  at  which  labor 
of  different  stages  brings  results,  we  find  in  Clark  still 
another  confusion  or  deviation  from  the  truth;  namely, 
in  regard  to  the  quantity  of  product  which  is  to  be  imputed 
to  labor.  If  he  would  compare  the  output  of  finished 
commodities  with  the  labor  which  in  fact  produces  them, 
he  would  see  that  the  cessation  of  the  series  of  successive 
activities  would  necessarily  entail  the  disappearance  of  the 
entire  output.  Consider  again  the  sort  of  case  assumed 
by  Professor  Clark:  four  stages  in  production,  indicated 
by  A,  A',  A",  A'",  standing  for  raw  material,  and  A'" 
for  the  consumable  product.  Assume,  to  avoid  complica- 
tions, that  all  this  occurs  on  no-rent  land  and  with  so  little 
use  of  fixed  capital  that  this  factor  may  be  left  out  of  ac- 
count. Suppose  now  that  at  each  stage  just  that  quantity 
of  labor  ceases  which  was  necessary  for  producing  100 
pieces  of  the  finished  commodity  A'".  Suppose,  first, 
that  the  needed  quota  of  laborers  at  A  stop  work;  then, 
just  at  the  moment  when  their  raw  material  would  have 
been  passed  on  to  the  laborers  at  A',  the  corresponding 
quota  at  this  stage  drop  their  tools;  and  so  on,  until  the 
laborers  at  A'"  quit  just  at  the  moment  when  the  nearly 
finished  products  would  hsLve  been  turned  over  to  them. 

In  other  words,  precisely  that  labor  ceases  at  each  stage 
which  otherwise  would  have  taken  its  part  in  the  produc- 
tion of  100  pieces  of  A'".  Now  apply  the  test  of  imputa- 
tion. What  decline  in  output  results  from  the  taking  away 
of  these  several  stages  of  labor?  Obviously,  the  cessation 
would  cause  the  disappearance  of  the  whole  100  pieces  of 
A'".    Not  50  or  80  of  A'"  would    fall  out,   but    the 


'-Ss-S^^^ 


tarn* 


^M 


274 


QUARTERLY  JOURNAL  OF  ECONOMICS 


whole  100.  For  each  intermediate  product  A  or  A^ 
which  is  lost,  a  corresponding  A'"  is  lost.  The  existence 
or  non-existence  of  the  whole  100  pieces  rests  on  the  exer^ 
tion  or  non-exertion  of  the  whole  labor  series.  Thereforcr 
the  whole  product  A'"  is  to  be  imputed,  on  Professor 
Clark's  principles,  to  this  series.  If,  on  the  other  hand, 
Professor  Clark  really  holds  to  his  thesis  as  to  synchroniz- 
ing labor  and  its  fruits,  he  would  have  to  impute  to  that 
contemporary  labor  which  he  puts  in  place  of  previous 
labor  just  so  many  pieces  of  the  completed  product, — 
other  pieces,  to  be  sure,  but  just  as  many.  He  would  have 
to  say  that  the  total  of  contemporary  labor  contributes  at 
once  its  due  share  of  the  finished  commodities.  Then  he 
must  ascribe  the  total  output  A'"  to  this  series  of  laborers, 
and  to  them  only.  But  he  does  nothing  of  the  kind.  A* 
if  it  were  a  matter  of  course,  he  cuts  off  something  from 
the  share  imputable  to  these  laborers.  Their  remunera- 
tion does  not  exhaust  the  entire  output.  Something  is 
left  over,  which  he  then  ascribes  to  his  "true  capital"  as 
its  net  product. 

It  is  obvious  that  this  diminution,  this  emergence  of  a 
return  to  capital,  is  the  very  heart  of  the  problem  of  in- 
terest. Professor  Clark  does  not  inquire  how  this  diminu- 
tion comes  to  pass,  as  to  either  kind  of  labor  series.  He 
does  not  do  so  as  to  the  true  series,  that  of  laborers  suc- 
ceeding each  other  in  time,  because  of  his  failure  to  see  that 
this  is  the  proper  series.  He  does  not  do  so  as  to  his  false 
series,  that  of  contemporaneous  laborers,  simply  because 
here  no  such  inquiry  can  possibly  be  made.  Hcv  can  you 
apply  any  test  as  to  the  contribution  of  a  given  kind  of 
labor  to  a  particular  output,— whether  it  contributes  the 
whole  or  a  part  only, — when,  in  fact,  it  adds  nothing  at  all 

to  that  output? 

Professor  Clark  thinks  he  departs  from  reality  only  in 
an  immaterial  detail.    But  under  cover  of  his  first  depart- 


V 


^ 


^• 


\ 


A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY     276 

ure  he  proceeds  to  a  second  departure  which  evades  pre- 
dsely  that  element  of  difference  to  which  aU  the  diflaculties 
of  the  problem  attach.  Ilrst,  he  contrasts  with  labor 
not  the  original  pieces  produced,  but  other  pieces;  next 
he  contrasts  with  labor  not  the  original  quantities  pro- 
duced, but  other  quantities.  Here,  again,  I  find  the  same 
fatal  consequences  of  his  conception  of  true  capital  and  the 
mysterious  powers  which  he  has  attributed  for  it.  His 
magical  quaUty  of  synchronizing  labor  and  product  gives 
him  a  pretext  for  overiooking  the  kernel  of  the  problem, 
and  for  contenting  himself  with  the  shallow  pretence  of  a 
solution.    He  assumes  tacitly  what  he  ought  to  explain. 


V. 

Professor  Clark's  book  contains,  finally,  another  group 
of  expressions  which  may  be  regarded  as  attempts  to 
grapple  with  the  problem  of  interest.  But  they  approach 
it  from  an  entirely  different  direction.  They  do  not  sup- 
port or  supplement  the  other  attempts,  but  cross  them. 
To  these  I  alluded  in  a  previous  passage,  when  I  remarked 
that  Professor  Clark  and  Professor  Seager  also  use,  not  only 
expressions  which  belong  to  the  productivity  theories,  but 
also  expressions  which  indicate  quite  a  different  point  of 
view.    They  belong,  to  put  it  briefly,  to  the  abstinence 

theory.^ 

Professor  Clark  says,  in  one  passage,  "Some  part  of  the 
output  of  every  kind  of  goods  is  traceable  to  capital,  and 
thus  to  the  sacrifice  termed  abstinence  J' ^  From  this  it 
might  be  inferred  that  Professor  Clark  is  disposed  to  enter 
upon  that  mode  of  explaining  interest  which  we  all  know 
as  the  abstinence  theory.  But  other  expressions  indicate 
that  such  an  inference  is  not  warranted.    Thus  he  says 


*  See  above,  p.  249. 


2  Page  398.    The  Italics  are  mine. 


^ 


r 


expressly  that  he  does  not  regard  it  as  necessary  to  con- 
sider abstinence  an  "economic  merit"  or  to  "justify  in- 
terest on  the  ground  of  it";  and  he  adds  with  emphasis 
that  "the  power  of  capital  to  create  product  is  the  basis 
of  interest."  ^  Such  utterances,  taken  by  themselves, 
imply  that  Professor  Clark  would  not  use  the  principle  of 
abstinence  even  for  justifying  interest,  as  distinguished 
from  a  theoretical  explanation  of  its  existence.  But, 
further,  he  sets  forth  with  great  distinctness  that  he  believes 
abstinence  to  have  to  do  only  with  the  creation  of  new  capi- 
tal and  to  be  wholly  a  "djmamic  phenomenon."^  His 
theory  of  capital  is  developed  as  to  a  static  state,  in  which 
there  is  no  abstinence.*  All  this  seems  to  me  to  show  that 
Professor  Clark  is  not  disposed  to  rest  the  theoretic  explana- 
tion of  interest  as  a  static  phenomenon  on  the  dynamic 
phenomenon  of  abstinence.  Such  an  interpretation  of  his 
view  is  confirmed  by  his  earher  unqualified  polemic  against 
me,  in  which  he  combated  my  views  on  the  ground  that 
they  regarded  interest  as  a  payment  for  vicarious  waiting.* 
Professor  Clark's  views  are  not  made  clearer  to  me 
by  a  passage  in  which  he  ascribes  a  part  of  the 
product  to  "the  sacrifice  termed  abstinence,"  and  cites 
with  approval  certain  expressions  of  Professor  Giddings. 
Professor  Giddings  seemed  to  me  to  find  the  cost  of  pro- 
duction of  capital  not  in  abstinence,  but  in  the  increased 

1  Pages  134,  135. 

'  Page  134.  It  deserves  to  be  noted  that  Professor  Clark  rejects  that  later  for- 
mulation of  the  abstinence  theory,  according  to  which  there  is  supposed  to  be  only 
waiting,  not  complete  abstinence.  He  says  in  unqualified  terms  "Abstinence 
relinquishes  an  enjoyr'  jut  forever"  (p.  134). 

•  "In  the  static  state  there  is  no  abstinence  or  creation  of  new  capital."  "The 
static  hj^othesis  excludes  abstinence ' '  (p.  136).  Professor  Fetter's  view  is  different 
He  distinguishes  between  "conservative"  and  "cumulative"  abstinence.  Prtn- 
ciplet  of  Eamomics,  p.  163. 

•"The  Origin  of  Intereat"  Quarterly  Journal  of  Economics,  April,  1S95,  pp. 
259-261.  "Interest  is  a  static  income  .  .  .  Interest  is  to  be  accovmted  for  by  a 
cause  that  would  act  in  a  static  society.  .  .  .  Creating  new  capital  is  not  a  part 
of  the  process  by  which  interest  is  secured.  ...  A  static  condition  excludes  ab- 
stinence, but  admits  of  the  earning  of  interest." 


» 


) 


A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY      277 

irksomeness  of  the  later  and  more  fatiguing  hours  of  labor.^ 
But  Professor  Clark  does  not  consider  this  topic  at 
length,  sajdng  that  "full  study  of  this  point  would  detain 
us  too  long."^  I  will,  therefore,  content  myself  with 
two  general  remarks.  In  the  first  place  the  abstinence 
theory  rests  on  certain  premises  and  leads  to  certain  con- 
sequences which  cannot  be  made  consistent  with  Profes- 
sor Clark's  theory  of  productivity.  In  the  second  place 
the  abstinence  theory  itself  has  its  critical  defile,  through 
which  the  searcher  for  an  explanation  of  interest  must 
pass.  A  simple  acceptance  of  its  fundamental  notions, 
without  express  discussion  of  the  difficulties  which  it  pre- 
sents, cannot  be  supposed  to  bring  us  nearer  to  any  solu- 
tion. 

VI. 

I  have  said  much,  perhaps  too  much,  on  the  details  of 
Professor  Clark's  theory.  But  I  believe  that  careful  and 
detailed  examination  is  the  best  tribute  of  respect  I  can 
pay  to  my  honored  opponent.  What  now  shall  I  say  in 
conclusion  as  to  the  whole? 

I  beheve  that  Professor  Clark  has  planted  in  the  midst 
of  rich  and  ingenious  thoughts  a  fatal  notion.  This  his 
lively  imagination  has  pictured  to  him  as  if  it  had  sub- 
stance and  reaUty.  In  fact,  it  covers  up  an  unsubstantial 
figure,  an  empty  form  of  speech  and  thought.  This  notion 
infects  his  whole  scientific  system.  Wherever  it  touches, 
— and  unfortunately  it  touches  almost  every  part  of  the 
system, — it  dwarfs  and  withers. 

Thus  some  parts  of  his  teaching,  lying  nearest  to  this 
notion,  are  simply  erroneous,  such  as  the  explanation  of 
interest  or  the  theory  of  the  annihilation  of  periods  of 

1  Quarterly  Journal,  July«  1889,  p.  503,  ff. ;  January,  1890, 172,  ff.,  besides  190,  flf. 

2  Page  398,  Diatributum  of  Wealth. 


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QUARTERLY  JOURNAL  OF  ECONOMICS 


A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY     279 


production.  Wliere  he  succeeds  in  keeping  to  the  truth 
of  actual  life,  he  is  compelled  to  find  his  way  by  artifices 
which  sometimes  run  directly  counter  to  the  natural  pro- 
cedure. Let  me  call  attention,  for  instance,  to  his  excellent 
statement  of  the  sufficiently  famihar  fact  that  a  change  in 
the  quantitative  relation  of  the  labor  and  capital  leads 
also  to  a  change  in  the  form  of  capital,  in  the  kind  of  labor, 
and  so  in  the  whole  process  of  production.*  This  is  a 
matter  sufficiently  famihar  to  every  one  who  understands 
that  the  use  of  ''capital"  means  the  application  of  the 
''capitahstic"  method  of  production,  and  that  the  increase 
or  decrease  in  the  quantity  of  capital  affects  the  methods 
of  production.  Professor  Clark,  however,  approaches 
this  subject  from  the  wrong  point  of  view.^  He  begins 
by  assuming  a  given  amount  of  capital  (which  he  states, 
somewhat  superficially,  in  terms  of  dollars),  and  then  dis- 
covers that  a  change  in  the  amount  of  capital  leads  to  a 
change  in  its  form,  and  that  this  change  in  form  leads  to  a 
change  in  the  apphcation  of  labor:  whereas  the  whole 
change  begins  with  a  different  apphcation  of  labor .^ 

In  other  places  Professor  Clark's  exposition  suffers 
from  insufficient  development.  His  propositions  are  not 
fully  explained.  This  arises,  in  part,  because  his  pecuUar 
point  of  view  prevents  him  from  seeing  the  importance  of 
a  full  explanation.  Partly  it  is  due  to  the  fact  that  a  more 
detailed  statement  would  bring  out  certain  points  at 
which  the  theory  of  true  capital  comes  into  conffict  with 
established  fact.  This  conffict  is  concealed  by  the  absence 
of  complete  and  exphcit  exposition.  The  theory  of  "  capi- 
tal goods"  suffers  not  less,  even  tho  Professor  Clark  de- 
clares an  exposition  of  this  theory  necessary  side  by  side 

» See  pp.  159,  ff .;  170.  174,  flf.;  186,  B.  «  137,  ff. 

'  That  such  a  method  of  production  may  begin  at  all,  it  is  necessary  that  people 
should  have  subsistence  (on  the  question  which  people  must  have  subsistence,  see 
my  Poaitive  Theory,  pp.  319,  410,  English  edition).  I  maintain  this  opinion,  not- 
withstanding Professor  Clark's  objections  on  p.  149.  He  there  combats  an  inac- 
curate statement  of  a  proposition  which  remains  fimdamentally  true. 


) 


with  that  of  "true  capital."  The  same  essential  defect 
appears  in  the  brevity  of  the  statement  of  the  theory  of 
value.  I  miss,  more  particularly,  careful  exposition  as  to 
the  value  of  producers'  goods  and  their  relation  to  the  value 
of  the  consumers'  goods  derived  from  them.^ 

It  is  significant  that,  notwithstanding  the  greatest 
circumspection  on  the  part  of  Professor  Clark,  he  is  unable 
at  times  to  conceal  the  inconsistency  between  that  which 
he  teaches  in  the  name  of  true  capital  and  that  which  he 
must  teach  in  view  of  obvious  facts  and  settled  principles. 
Naturally,  these  inconsistencies  appear  when  he  discusvses 
— ^briefly,  to  be  sure — capital  goods,  and  especially  the 
bearing  of  the  principle  of  imputation  as  to  capital  goods 
and  true  capital.  For  instance.  Professor  Clark  repeatedly 
says  that  capital  goods  create  and  earn  their  gross  prod- 
uct.^ Now  it  is  fundamental  in  his  system  that  every 
factor  of  production  receives  that  which  it  "creates," 
that  which  "is  due  to  it"  or  is  imputable  to  it.  Hence 
there  must  be  imputed  to  a  capital  good  its  whole  gross 
yield.  Nevertheless,  Professor  Clark  says  with  equal  dis- 
tinctness— in  contradiction,  not  only  to  the  truth,  but  to 
his  own  doctrines — that  the  '^net  product"  of  any  instru- 
ment, for  instance  of  a  concrete  capital  good,  is  the  only 
product  that  is  imputable  to  it." 

^  Various  passages  in  Professor  Clark's  book  touch  on  the  theory  of  value,  but 
contain  no  consistent  theory  of  value,  touching  as  they  do  some  points  very  folly 
and  quite  neglecting  others.  In  Chapter  XXI V.  there  are  some  complicated  remarks 
about  the  ultimate  imit  of  value.  These  seem  to  me  similar  to  the  theory  of  true 
capital:  they  afford  a  second  example  of  Professor  Claric's  bent  for  artificial  inter- 
pretations. Still  another  example  of  this  characteristic  appears  in  his  extraordi- 
nary generalisation  of  the  principle  of  "rent."  This  leads  him  to  the  conclusion, 
among  others,  that  the  wages,  even  of  the  most  common  labor,  are  to  be  regarded  as 
T&xt,  arising  from  its  superiority  over  absolutely  useless  labor.  See  p.  3fiO;  compare 
also  191,  349;  see  Professor  Fetter's  excellent  remarks  in  his  Prvneiplf,  p.  205. 

•  Pages  270-272,  335. 

I  Page  350.  This  expression  is  by  no  means  a  solitary  one.  Eluewhere  also, 
see  pp.  349,  351,  355,  357,  358,  361,  363.  The  product  of  a  faotor  is  identified 
with  its  net  rent.  The  net  rent  is  what  is  "traceable"  to  the  faotor.  This  thought 
is  applied  not  only  to  "true  capital,"  but  in  express  terms  to  "capital  goodi." 
such  as  tools,  instruments,  ships,  machines,  buildings. 


\ 


V 


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QUARTERLY  JOURNAL  OF  ECONOMICS 


Les  extremes  se  touchent.  A  greater  contrast  cannot  be 
conceived  than  that  between  the  systems  of  Marx  and  of 
Professor  Clark.  The  main  thesis  of  the  latter  is  that  in 
modem  society,  under  free  competition,  every  factor  tends 
to  receive  what  that  factor  has  produced.  Marx,  on  the 
contrary,  teaches  that  the  characteristic  of  modern  society 
is  the  robbery,  by  the  capitaUsts  from  the  laborers,  of 
part  of  the  laborers'  product.  And  yet  Clark  constantly 
reminds  me  of  Marx  and  his  ways.  Both  have  high 
powers  of  systematic  thought.  Both  have  an  overflowing 
imagination,  with  a  tendency  to  mystical  construction. 
In  both  the  starting-point  of  the  systems  is  foimd  not  in 
facts,  but  in  a  dialectic  syllogism.  Marx's  syllogism,  going 
back  to  Aristotle,  finds  the  essence  of  the  exchange  of  com- 
modities in  an  equation  of  labor  quantities.  Clark  begins 
by  assuming  that  permanent  capital  must  be  something 
different  from  the  perishable  capital  goods.  Marx  strips 
commodities  of  every  other  quahty,  and  treats  them  as  so 
much  labor  jelly.  Clark  thinks  of  capital  as  a  quantum 
of  value  "imputed"  in  material  goods.  He  strips  off 
everything  which  may  suggest  material  existence,  and  re- 
tains only  a  value  jelly,  existing  eternally,  never  destroyed, 
wliich  is  the  true  twin  of  Marx's  labor  jelly. 

Both  use  the  utmost  endeavors  to  keep  their  systems 
free  from  formal  inconsistencies.  Hence  they  fail  to  de- 
velop certain  topics  which  would  open  up  such  inconsis- 
tencies. Marx  neglects  the  effect  of  competition  on  value. 
Clark  passes  by  the  theory  of  capital  goods  and  the  theory 
of  the  value  of  producers'  goods.  And  yet  with  both  the 
inherent  inconsistencies  in  the  end  necessarily  come  to  the 
surface. 

But  I  find  points  of  resemblance,  not  only  in  their  mode 
of  thought,  but  also,  notwithstanding  divergence  in  the 
outcome,  in  the  substance  of  their  teaching.  Two  points 
of  resemblance  seem  to  me  especially  noticeable.    Marx, 


A  RELAPSE  TO  THE  PRODUCTIVITY  THEORY      281 


as  is  well  known,  when  considering  the  troublesome  fact 
of  skilled  labor,  gives  such  labor  a  much  higher  value  than 
common  labor,  and  resorts  to  the  dialectic  explanation 
that  one  day  of  skilled  labor  "represents"  several  days 
of  common  labor.  In  precisely  the  same  way.  Professor 
Clark  says  that  the  man  of  the  highest  grade  "represents 
many  units  of  labor  in  the  abstract."^  Again,  they 
resemble  each  other  in  their  denial  or  misconception  of  the 
influence  of  time  and  of  periods  of  production  spreading 
through  time.  Marx  ignores  completely  the  existence  of 
an  interval  between  the  exertion  of  labor  and  the  emer- 
gence of  an  enjoyable  product.  He  denies  that  the  capital- 
ist "advances"  wages  to  the  laborer.  Hence  he  concludes 
that  the  laborer  should  receive,  at  the  very  instance  of 
applying  his  labor,  precisely  the  quantity  of  enjoyable 
products  which  will  appear  in  the  future  as  the  product  of 
his  labor.  Professor  Clark  also  teaches  that  production 
brings  enjoyable  results  without  an  interval  of  time.  His 
only  defence  against  Marx's  corollary  is  to  tiirn  to  his 
true  capital  as  a  deus  ex  machina:  this  magical  creature 
has  imputed  to  it  those  contributions  which  sober  logic 
would  ascribe  proximately  to  capital  goods,  and  in  the  end 
to  the  labor  which  created  the  capital  goods.^ 

My  criticism  of  the  two  is  the  same.    Marx  has  resorted 
to  empty  dialectics,  not  to  facts,  as  the  foundation  of  his 

» Page  365. 

'  The  points  at  which  the  two  sets  of  doctrine  meet  and  part  company  may 
also  be  defined  thus.  Both  deny  and  try  to  eliminate  the  influence  of  time.  Hence 
both  confoimd  the  claims  of  the  several  sets  of  labor  exerted  at  different  times. 
But  they  do  this  from  opposite  directions  and  with  opposite  tendencies.  Marx 
fallaciously  ascribes  to  the  labor  of  the  present,  the  claims  of  labor  of  the  past,  in 
order  that  he  may  allot  to  present  labor  as  much  of  present  product  as  the  earlier 
labor  would  be  entitled  to  to-day,  if  the  division  of  the  product  were  not  to  take 
place  xmtil  to-day.  Qark,  on  the  other  hand,  no  less  fallaciously  ascribes  to  present 
labor  smaller  claims,  corresponding  to  the  less  value  which  such  labor  undoubtedly 
has  in  the  present,  and  puts  this  present  labor  in  place  of  that  of  earlier  date.  He 
then  can  plausibly  ascribe  to  labor  in  general  a  less  amount  of  the  output  than  in 
fact  is  due  to  it.  Both  are  guilty  of  the  same  confusion  as  to  two  essentially  differ- 
ent quantities.  Marx  would  turn  over  to  labor  the  larger  amount  thus  falsely 
differentiated,  Clark  would  turn  over  the  smaller. 


n 


i 


282  QUARTERLY  JOURNAL  OF  ECONOMICS 

theory  of  distribution.    Clark  has  resorted  to  no  less  empty 
dialectics  in  order  to  combat  Marx's  reasoning. 

Our  science  has  suffered  much  from  the  sway  of  words; 
more,  perhaps,  than  any  other  science  except  philosophy. 
Touched  by  the  spirit  of  modern  science,  it  has  begun  to 
consider  criticaUy,  step  for  step,  wherein  its  conclusions 
rest  on  the  basis  of  facte.  Based  as  it  must  be  partly  on 
empirical  psychology,  partly  on  natural  science,  it  en- 
deavors so  to  develop  its  doctrines  that  they  shall  never 
be  left  without  foundation,  but  shall  always  deal  with 
facts  such  as  the  sister  sciences  can  continue  to  elucidate. 
But  Professor  Clark's  true  capital  abides  with  no  such 
facts.  His  theory  of  capital  entices  us  from  the  sober, 
sohd  paths  which  modem  science  in  all  ite  branches  tries 
to  follow.  It  relapses  into  a  mode  of  scientific  thought 
from  which  we  have  slowly,  but  successfully  freed  ourselves. 
Hence,  with  every  respect  for  the  intellectual  quality  of 
my  opponent,  I  must  oppose  his  doctrines  with  all  posr 
Bible  emphasis,  in  order  to  defend  a  soUd  and  natural 
tlieory  of  capital  against  a  mythology  of  capital. 


E.  Bohm-Bawbrk. 


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Capital  and  interest  once  more: 
I.  Capital  vs.  capital  goods. 


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